What is Business Banking?
Business banking, commonly known as commercial banking, relates to the financial dealings that a company has with a financial institution. Business banking is essentially personal banking tailored to the needs of businesses. This applies to items like business loans, credit cards, bank accounts, and savings accounts. In such form of banking, a bank, or a wholly-owned subsidiary of a bank, only deals with corporations or small or large business owners.
How Does Business Banking Work?
A new business owner opening a bank account for the company should be one of the first actions. Owners commonly maintain separate business and personal banking accounts as a business is recognized as a distinct legal entity. Corporations and limited liability partnerships (LLPs) can use a variety of business banking services, such as bank accounts, business loans, and credit. It might be for mortgages, business loans, credit card services, deposit accounts, or even non-interest-bearing goods. Business banks can also help corporate and business clients with asset management and securities underwriting. These financial services are only available to businesses and not to retail clients.
Types of Business Banking Institutions
You’ll 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.
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Traditional Banks
Traditional banks refer to for-profit banking institutions with brick-and-mortar branches. They offer a complete range of banking services, including checking products, savings products, lending products, and credit cards.
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Online-only Banks
Compared with traditional banks, online banks operate exclusively online and provide no physical branches. However, because online-only banks don’t need to pay for rent and utilities, they can usually offer banking products with lower fees and higher rates than their traditional counterparts.
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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. To join a credit union, one usually has to meet specific criteria, such as living in a specific location, working for a particular employer, or having family members who are already members.
Benefits of Business Banking
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Helps to Maintain Separate Business and Personal Finances
The law mandates corporations and LLCs to keep their company and personal money separate in order to shield owners from responsibility. Even if it wasn’t required by law to separate personal and professional finances, the failure to do so carries a lot of risks. It will be more difficult to determine how much money the business is making or the expenses incurred by it if a personal account is used.
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Ease in Taxation Process
Tracking business income and expenses is made simpler by opening a separate business bank account. This is especially helpful when it comes time to file business taxes.
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Helps Boost Business Credit
When determining whether to provide the business with a loan or not, creditors look to the business’s banking history as a guide. By opening a business bank account, one can create beneficial business relations, develop the company’s credit, and get better terms on loans and other financial services.
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Provides Access to Business Tools
Most business banks additionally provide services that are tailored to business needs, including merchant services, payroll processing services, business advisory services, and software integrations for invoicing and bookkeeping.
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Helps to Gain Discounts and Rewards Customised to Businesses
Many business banks offer money-saving incentives like cash back, reloadable reward points, airline miles, and discounts on office supplies and software.
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Offers a More Professional Image for the Business
When transacting with suppliers, vendors, or clients, the usage of business checks or a business account gives the company a more credible appearance.
Learn about the difference between Current Account and Savings Account.
Business Banking Services
Cash management: This service helps to manage things such as cash in hand, accounts payables, and accounts receivables. It can aid in increasing a company’s liquidity and bringing down transaction expenses.
Bank financing: During the course of operations businesses require various forms of credit such as long-term loans, fixed-term loans, short-term loans, and asset-based loans depending on a business’s capital requirements. Business banks extend the required credit.
Industry advice: Business Banks might be specifically tailored to a certain industry, such as commercial real estate or agriculture.
Payroll services: For any business that has a workforce, payroll is a key part. Therefore, to assist with everything related to payroll management, some banks provide software and specialised services.
Fraud protection: When doing business, there is always the possibility of fraud. For protection against fraud that might occur with their checking accounts, many banks offer fraud insurance. For instance, it can include defense against questionable vendor checks or personnel fraud.
Automated clearing house (ACH): This kind of service is related to the systems for processing payments that facilitate the transfer of digital currency.
Online Business Banking: The services offered by traditional business banking are also available online for business. Most banks have an online presence or mobile app that allows customers to transfer money, check account balances, and apply for credit. Banking for businesses can be done more effectively with the help of online services.
Commercial Banking System in India
The commercial banking system is the major part of India’s financial services given their asset sizes, branch networks, and types of services delivered. The commercial banking sector in India includes public sector banks, private sector banks, foreign banks, small finance banks, and payment banks.
- Public Sector Banks (PSBs): Public Sector banks are owned by the government. They have the largest share in India’s commercial banking system.
- Private sector Banks (PVBs): The private sector banks are majorly owned by non-government entities.
- Foreign Banks: There are only a few foreign banks in India that operate in branch mode and subsidiary mode.
- Small Finance Banks: Small finance banks are private sector banks that offer limited products to customers. They focus on tailored deposit products and providing credit to small business units, small and marginal farmers, micro and small industries, and other unorganized sector entities through technology-led low-cost operations.
- Payment Banks: These are licensed by the RBI to perform payment services and have only limited banking functions. They were set up as niche entities to facilitate small savings and to provide payments and remittance services to migrant labour, low-income households, small businesses, and other unorganized sector entities.
- Regional Rural Banks: RRBs are promoted by the central government, state government, and the sponsoring scheduled commercial bank. The RRBs give loans to small and marginal farmers and other priority sectors.
Know the difference between Neo Banks and Traditional Banks.
Conclusion
Business banking consists of bank services and products that are only available to commercial. When operating a business, opening a business bank account is absolutely essential since it enables one to keep your personal and business finances distinct. The services offered by commercial banking are specially designed to satisfy the requirements of companies of all sizes.
Business Banking FAQs
Q1. Is business banking separate from personal banking?
While many aspects of business banking are similar to personal banking, some of the services may differ. For example, business banking may offer account management to many people in a firm, while personal banking usually offers management of the account to a single user.
Q2. What documents are needed to open a business account?
Banks will usually ask for ID proofs of the directors, the Corporate Identification Number of the firm, and a registration certificate.
Q3. Is PAN a must to open a business account?
Most banks will ask for the permanent account number of the firm to open a business account.
Q4. Can business banking be done online?
Most banks offer online management of business accounts.