What Is Business Banking?
Benilyn has over a decade of experience as a banking officer. Her expertise is featured throughout Fit Small Business in personal finance, credit card, and real estate investing content.
This article is part of a larger series on Business Banking.
Business banking refers to banking transactions that are specific to business clients. Business banking services include loans, credit cards, savings accounts, and checking accounts designed to meet the needs of businesses rather than individuals. The term business banking is also used interchangeably with commercial banking. Business banking is best for sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.
How Business Banking Works
Business banking focuses on providing banking services, such as loans, credit, and bank accounts, solely to business clients. This refers to a bank or a separate unit of a financial institution that deals exclusively with businesses and corporations. In business banking, business owners and corporate representatives work with a bank for their business-related financial transactions, where banks provide them with financial and advisory services that meet their business’s needs.
Business vs Personal Banking
In business banking, banks deal with business and corporate clients and provide services for their business-related financial dealings. Meanwhile, personal banking refers to the banking services provided specifically to individual clients. Personal banking is also referred to as retail banking.
Retail Banking vs Commercial Banking at a Glance
Retail Banking | Commercial Banking | |
|---|---|---|
Who It’s Best For | Individuals | Businesses |
Checking and savings accounts Certificates of deposits Mortgages | Business checking and savings accounts Certificates of deposits Money market accounts Business loans | |
Services Available | Foreign currency & remittance services Insurance services | Treasury and cash management services Employer services such as payroll Insurance and investment services Asset management services |
FDIC Insurance | Yes, up to $250,000 per depositor, per bank, per ownership category | Yes, up to $250,000 per bank |
ATM Network Availability | Yes | Yes |
Online Banking Experience | Yes, both mobile and on desktop | Yes, both mobile and on desktop |
Who Should Consider Business Banking
Business banking is best for startups, small businesses, and medium-sized enterprises because it helps separate their business finances from their personal finances. Large-scale companies and corporations should also use business banking services for their financial dealings.
The following should consider business banking:
- New business owners: One of the most important things that new business owners should do is to open a separate business bank account to avoid commingling their business and personal finances.
- Growing businesses: Small businesses that don’t have a business bank account should consider opening one because business banking products, such as business loans, are essential especially if they will need additional funds to finance their growth.
- Big companies: Corporations and other large companies need business banking products, services, and facilities to manage their financial transactions.
Types of Business Banking Products
Commercial banks cater to a wide variety of clients, ranging from startups, small to medium-sized businesses, and large corporations with different needs. Business banking products and services are specifically designed to meet the diverse needs of these businesses.
Most commercial banks offer the following business banking products: business checking accounts, business savings accounts, business credit cards, and business lending and loans.
Business Checking Accounts
A business checking account is an essential business banking product every business should have. It allows you to make deposits and withdrawals, write checks, process automated clearing house (ACH) payments, and make purchases and cash withdrawals using a debit card or ATM card for your business-related financial transactions. Having a business checking account is important, especially if your business needs to make regular payments to suppliers or vendors. Business checking accounts typically have associated costs, though you can find some fee-free business checking accounts from digital banks.
Business Savings Accounts
A business savings account is a bank account that is specifically designed for business purposes—this is where you can save your business profits for future use. In most cases, business savings accounts allow you to access your funds whenever you need them easily. Savings accounts also allow you to earn a small amount of interest, making it a good place to park your extra money.
Business Credit Cards
A business credit card is a credit card intended for business use. Business credit cards are an important business banking product because they can help build business credit, which is necessary for your business’s future financing needs. Having a business credit card can also help business owners keep their business and personal expenses separate.
Business Lending & Loans
Business lending and loans are among the most essential business banking products available. Most business owners will need funding at some point to finance their business needs and growth, and commercial banks can provide business financing. Business loans differ from personal loans because they are intended specifically for business purposes. Business loans include Small Business Administration (SBA) loans, business lines of credit, merchant cash advances (MCAs), commercial mortgages, and equipment financing.
FDIC Insurance
Business bank accounts have the same Federal Deposit Insurance Corporation (FDIC) insurance coverage as retail bank accounts, which is up to $250,000 per FDIC-insured bank. This coverage is separate from any business owner’s or partner’s personal bank account coverage as long as the business is separately organized under state law and is not primarily formed to increase the owner’s FDIC coverage.
Pros & Cons of Business Banking
| PROS | CONS |
|---|---|
| Separates business and personal finances | Typically associated with higher fees and costs |
| Helps you manage and organize your business’s financial transactions | Needs more requirements compared to retail banking |
| Provides unique products and services exclusively designed for businesses | Some of the services offered may not be needed by your business, depending on your business’s size |
Bottom Line
Business banking is composed of bank products and services exclusive to commercial clients. Business banking is important because it allows business owners to separate their business and personal finances. The products and services under commercial banking are tailored specifically to meet the needs of businesses of all sizes.
