Business banking, also known as commercial banking, refers to the products and services financial institutions provide to meet the unique needs of business clients. Examples of business banking products include business checking accounts, savings accounts, loans, and credit cards. Business banking can be used by companies with any organization entity, including sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.
Video: 5 Things You Need to Know About Business Banking
How Business Banking Works
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 needs. Typically, banks or financial institutions create separate departments or divisions exclusively for providing business products and dealing with business clients.
When you open a business bank account, you will be required to submit documentation related to your business, such as business licenses, articles of incorporation, or articles of organization.
Business vs Personal Banking
| Business or Commercial Banking | Personal or Retail Banking | |
|---|---|---|
| Who It’s Best For | Businesses | Individuals |
| Products Available |
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| Services Available |
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| Federal Deposit Insurance Corporation (FDIC) Insurance | Yes, up to $250,000 per bank; extended FDIC insurance available at certain financial institutions | Yes, up to $250,000 per depositor, per bank, per ownership category |
| ATM Network Availability | Yes | |
| Online Banking Experience | Yes, both mobile and on desktop | |
Pros & Cons of Business Banking
| PROS | CONS |
|---|---|
| Separates business and personal finances | Is 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 | Has some services that your business may not need, depending on your business’s size |
Who Should Consider Business Banking?
Business banking is a necessity for any business size and entity type. Here are a few benefits business banking provides:
- Lets you separate business and personal finances: To protect owners from legal liability, the law requires corporations and LLCs to keep their business and personal finances separate. However, even if you weren’t legally obligated to separate your business and personal finances, failing to do so comes with many risks. For instance, if you use your personal bank account for business expenses, it’ll be harder to get a picture of how much money your business is making.
- Makes tax preparation easier: Opening a separate business bank account makes it easier to track business revenue and expenses. This is useful when you need to file business taxes.
- Helps you build business credit: Creditors use your business banking history as a reference when deciding whether to give you a loan. By opening a business bank account, you can establish good business relationships, build business credit, and gain access to better rates on lending products and loans.
- Gives you access to business tools: Most business banks also offer solutions that cater to your business needs, such as bookkeeping and invoicing software integrations, merchant services, payroll processing services, and business advisory services.
- Provides access to business-specific discounts and rewards: Many business banks provide cost-saving promotions, such as cash back, redeemable rewards points, airline miles, and discounts on business products and software.
- Offers your business a more professional image: You can make your business appear more legitimate by using business checks for transactions with suppliers, vendors, or clients.
Types of Business Banking Products
Commercial banks cater to a wide variety of clients—from startups to small and medium-sized businesses (SMBs) 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
A business checking account is a type of bank account that lets you store and move your working capital around. Through it, you can make deposits and withdrawals, write checks, process automated clearing house (ACH) payments, and make purchases and cash withdrawals using a debit/ATM card for your business-related transactions.
Having one 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 free business checking accounts from digital banks.
Business Savings Accounts
While checking accounts hold working capital, business savings accounts let you store excess funds for future use and allow you to earn a small amount of interest, making it a good place to park your extra money. In most cases, business savings accounts allow you to access your funds easily whenever you need them. While transaction limits were lifted by the government, some banks still limit fee-free withdrawals to six per statement cycle.
Business Credit Cards
A business credit card is a credit card intended for business use. By using one, you can build business credit and improve creditworthiness, which gives your business access to better financing opportunities in the future. Having one can also help you keep your business and personal expenses separate.
Business Lending & Loans
Business lending and loans are designed to give you access to funding and working capital for your unique business needs. Business loans differ from personal loans because they are specifically intended for business purposes. Common business lending products include Small Business Administration (SBA) loans, business lines of credit, merchant cash advances, commercial mortgages, and equipment financing. If you’re in the market for getting a loan, our guide on how to get a small business loan will walk you through the process.
FDIC Insurance
Most business bank accounts provide FDIC insurance up to $250,000. FDIC insurance promises to compensate your business bank deposits—should your bank or financial institution fail. This coverage is separate from your personal bank account coverage, as long as your business is separately organized under state law.
However, many banks and fintech companies can insure deposits in excess of $250,000 by using IntraFi Network Deposits. That company combined Certificate of Deposit Account Registry Service (CDARS) and Insured Cash Sweeps (ICS) with some of its financial offerings in 2021 to provide all of those services together.
If you regularly have deposits in excess of $250,000 with your business, verify with your bank or fintech to see if it offers extended FDIC insurance.
Types of Business Banking Institutions
You will find business banking products in financial institutions such as traditional banks, online-only banks, and credit unions. Understanding the different types of financial institutions will help you choose a bank for your business.
Traditional Banks
Traditional banks refer to for-profit banking institutions with brick-and-mortar branches. They tend to offer a complete range of banking services, including checking products, savings products, lending products, and credit cards. Check out U.S. Bank’s website for more information on a traditional business checking account.
Online-only Banks
In contrast to traditional banks, online banks operate exclusively online and provide no physical branches. However, because online-only banks do not need to pay for rent and utilities, they can usually offer banking products with lower fees and higher rates than their traditional counterparts.
Online-only banks will either be FDIC insured or backed by an FDIC-insured bank. Head over to Found’s website to open an account.
Credit Unions
Credit unions are nonprofit organizations owned by their members. They focus on creating specialized services that cater to the needs of their membership base. As a result, credit unions usually offer lower fees and higher rates.
To join a credit union, you usually have to meet specific criteria, such as living in a specific location, working for a particular employer, or having family members who are already members. Visit Affinity Federal Credit Union’s website to open an account or see our buyer’s guide to the best credit unions for small businesses.
Frequently Asked Questions (FAQs)
Business banking usually refers to products and services offered to smaller businesses, while commercial banking is usually reserved for large businesses and corporations. Some banks will offer some products for smaller businesses under their commercial brand, as it varies from bank to bank.
There are seven reasons to open a business bank account:
- Keeps your business and personal finances separated.
- Helps you build your business credit.
- Lets you assess your business performance more easily.
- Lends credibility to your business.
- Helps simplify tax season.
- Helps you build a banking relationship.
- Allows you to accept credit card payments.
While some traditional banks will have a monthly fee for business bank accounts, that fee is often waivable if certain balance or transaction criteria are met. Online-only banks and fintech companies usually offer banking services with no monthly fee.
Bottom Line
Business banking is composed of bank products and services exclusive to commercial clients. Opening a business bank account is a complete necessity when running a business because it allows you to separate business and personal finances. The products and services under commercial banking are tailored to meet the needs of businesses of all sizes.
