What services does a bank offer for a small business

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Banks and Banking

A bank is a company that works with the money that the people give it. If you give your money to a bank, it not only protects it but pays you interest so that it can work with the money. This is one of the reasons why people save their money in a bank. Money may also be safer there than at home.

Banks also lend money to other businesses and customers. They collect extra money called banking fees with which they pay interest to savers as well as salaries for their workers. Banks make a profit because they collect more interest than they pay to savers.

Without banks the world’s economy would not be able to grow. Investors would not find the money they need for new projects. Industries could not buy new machines and modern technology.

What kind of services do banks offer?

Banks provide their customers with a number of services. With a checking account you can pay your bills. A check is a slip of paper that tells the bank how much money it should withdraw from your account and pay to someone else. Today, more and more people use the internet, also a banking service, to pay their bills. Banks also give their customers plastic cards with which they can get money from their account everywhere and whenever they want. They can also use them to pay without cash at shops, gas stations and other stores. Checking accounts are a comfortable way for customers to handle their money.

Savings books that shows how much money you have paid into and withdrawn from your account

For people who want to save money banks offer savings accounts. Usually, banks pay more interest for savings accounts than they do for checking accounts. They hope that the customers will leave their money in the bank for a long time, which is why the bank can work with this money and offer it as loans. Banks, however, cannot give all of their money as loans. In most countries the government limits the amount of money that banks can use as loans. They must always keep back a certain percentage in the form of cash.

People who need money for certain things like buying a house or a car need a lot of money quickly. The money they borrow from a bank is called a loan. In most cases they do not pay back all of the money at once but a small part of it, with interest, every month. If someone cannot pay back a loan the bank usually can take away valuable objects like cars or houses.

Modern banks offer their customers many other services as well. They tell them how they can make money with investments in stocks and bonds. Credit cards are given to customers as a cash-free way of buying things. Almost all banks have automatic teller machines (ATM) at which customers receive money from their account. Telephone banking is an easy way to pay your bills by calling a special telephone number and typing in a certain sequence of digits. Some banks even deal with insurance.

Types of banks

Commercial banks are the most important banks. They offer many services, different forms of accounts and also loans. While, at first, commercial banks only offered its services to businesses and companies, they are for everyone today.

Investment banks do not take or keep the money of individuals. They help organizations and large companies raise money on the international financial markets.

Central banks manage the banking system in a country. The Federal Reserve in the United States and Bank of England are two prominent banks that take over these tasks. The European Central Bank is responsible for the circulation of money in the Euro zone.

Online banks can often give their customers more interest because they do not have the expenses that physical banks do. They can be accessed over the internet and are becoming more and more popular.

Savings and loans are banks that specialize in financing houses. Although interest rates are higher such banks offer up to 30-year mortgages. Customers pay back their loan through a monthly payment that they can afford.

Development banks are financial organizations that help Third World Countries. They not only provide money for nations in Africa, Asia and South America, but also send aid workers and offer technical help.

Automated Teller Machine (ATM) in a bank

International banking

The world’s largest banks are located in Europe, the United States and Japan. In most cases they operate in many countries of the world. Because banking is a global industry that does not stop at a country’s borders there must be worldwide agreements. International standards that banks must obey are written down in the Basel accords.

History of banking

Banking has a long tradition. In Mesopotamia bankers kept gold and silver for people and lent it to others. Ancient Rome and Greece had similar banking systems to the ones we have today.

During the Middle Ages Italy was the centre of European banking. Jewish traders emerged as the first bankers and became very successful businessmen. Florence and Venice became known as two cities in which many people earned their money through banking. The Medici family dominated Florence for over two centuries and set up Europe’s largest bank in the 15 th century.

The first world wide banking crisis emerged during the Great Depression in 1929. Many citizens lost their jobs and their savings as banks crashed. In 1933 American president Franklin D. Roosevelt signed a bill in which the government guaranteed the savings of depositors if a bank went bankrupt.

In 2008 a banking crisis hit America and spread throughout the world. Banks gave homeowners mortgages without checking their financial backgrounds. House prices began to drop and banks lost a lot of money. Governments in many countries had to give them money and prevent them from becoming bankrupt.

Small Business Banking

Business Banking Components

Frequently Asked Questions

When determining which bank works best for your business, there are several factors to consider, including checking and savings account services, interest rates for deposit accounts, introductory and service fees, branch and ATM banking accessibility, transaction limits, minimum balance, and signup offers.

Start by choosing where you want to bank. Some business owners choose to open a business account at the same bank they use for their personal bank accounts. When you open a business bank account, you will need to provide certified documentation to verify your business. If you’re a sole proprietor, for instance, a business license and a registration of your trade name might be required.

If you are just starting your business, then the business is essentially an extension of yourself. Your business and personal credit report will initially be linked. By establishing business credit, you separate your personal credit from your business credit. It takes time and effort, but begin by separating your business finances from your personal finances. Set up a business bank account, and keep your books separate.

Organizations see a large volume of checks, and they need to get funds available quickly for operations, payroll, and expansion. Remote deposit is a way to process payments without sending paper checks to your bank or credit union. By scanning an image (or taking a photo) of checks instead of moving physical documents around, you get faster deposits and fewer errors.

Key Terms

Commercial banks focus on products and services that are specifically designed for businesses, such as deposit accounts, lines of credit, merchant services, payment processing, commercial loans, global trade services, treasury services, and other business-oriented products.

Automated Clearing House (ACH) is a network that coordinates electronic payments and automated money transfers. ACH is a way to move money between banks without using paper checks, wire transfers, credit card networks, or cash. On statements or in your transaction history, ACH means that an electronic payment has been made to or from your account using your checking account information.

Retail banking is everyday banking that happens between consumers and their personal banks. A retail bank offers consumers basic banking services, including checking accounts, savings accounts, and loans. Even if you primarily bank online, you’ll still interact with your retail bank on a regular basis.

A bank guarantee is a promise from a bank that if a party defaults on a debt or obligation, the bank will cover the other party’s loss. A bank guarantee can encourage startups and small businesses to take risks and explore business opportunities that they wouldn’t be able to otherwise.

Microfinance—also called microcredit—is a way to provide small business owners and entrepreneurs access to capital. Essentially, microfinance is providing loans, credit, and access to savings accounts—even insurance policies and money transfers—to the small business owner and entrepreneur.

A letter of credit is a payment method that smoothes the way for international trade and a variety of other transactions. With a letter of credit, buyers and sellers can reduce their risk, ensure timely payment, and be more confident about the reliable delivery of goods or services.

A chargeback is a reversal of charges after purchase. A payment gets returned to a buyer from the seller’s account. Chargebacks are probably most popular for credit card purchases, but they are increasingly used for other types of payment, including debit card purchases, payments made through payment platforms like PayPal and Square, and electronic bank drafts.

Lockbox payments are a way for companies to streamline the way they accept money from customers and get access to the cash. When a company uses a lockbox service, they typically set up a special P.O. box for their customers to send payments to; then, the bank collects those payments, deposits the cash, and updates the company on their transactions.

An irrevocable letter of credit is an agreement between a buyer (often an importer) and the buyer’s bank. The bank agrees to pay the seller (the exporter) as soon as certain conditions are met. Because it is irrevocable, the terms of the letter cannot be changed without the agreement of everyone involved.

Asset-backed lending refers to a business loan or line of credit secured by a business’s assets. Loans back by assets may make sense if your capital is tied up and you’re having trouble getting approved for other types of financing.

6 Questions Every Small Business Owner Should Ask Their Bank

Many owners of small businesses may be using a bank that’s not ideal for their needs. You may be using the bank where your personal accounts are, or one close to your business. But in fact, you need to shop for a small business bank like you’d shop for any other service – making sure that what they offer and services they provide will meet your needs. Here’s some tips on what to look for in a bank for your small business.

1. What services do they offer?

Talk to the bank about their potential services for small businesses. Some banks, for instance, offer payroll services or individual retirement accounts (IRAs) for employees of small businesses. Some may offer wire transfers, lines of credit, business credit cards, or remote deposit. Another thing to look for is if they have an attractive technology platform that provides convenience to you. Do they have an investment services department than can help you plan for the future of your business? Choose a bank that offers services you need. Take the time to think about services you might need in the future (over the next two years). Do they offer these?

2. Do they offer competitive products?

Do some comparison shopping on bank products. Do they offer products like lines of credit, equipment leasing, commercial real estate (CRE) loans, or mortgage loans? Not all banks do. It’s important that they have the best option available for your specific business and needs.

3. Do they offer SBA loans?

Loans from the U.S. Small Business Administration (SBA) are very advantageous to small business owners, offering lower interest rates and better terms. The SBA partners with banks who actually make these loans. But not all banks offer SBA loans. Check into their relationship with the SBA, especially if you are likely to be in the market for a loan within the next two years.

4. Will you know your banker?

In a world where more and more goods and services are offered online, it’s still a good idea for a small businessperson to know their banker and be able to talk to them face to face. Why? Because they can provide customized, personal attention to you as a business owner. They also know your character and standing in the community – and that can help small business owners receive benefits and services that can help them build and run their business.

5. Do they know the local market?

Community and regional banks can simply be a better fit for small businesses because they know the local market. The loan officers and other bankers know the local economic picture. It can make them more flexible, and apt to suggest ways they can help. Many large banks use strict online algorithms in making loan decisions, for example, where credit scores and cash are make-or-break factors. A smaller community bank has local decision-making authority where they can use character and community standing more than an algorithm. It’s also to their advantage to help local small businesses – which, in turn, can work to your advantage!

6. Can they grow with you?

Many small businesses start very small, with one or two employees. But you may either want to grow or find growth occurring with success! It’s prudent to pick a bank that can grow with you. Look at the range of small business services they offer, for example. Even if you don’t need services such as CRE or equipment leasing now, you might in the future if you want to open new locations or manage your equipment costs differently.

CBC Bank: Your Small Business Partner

Finding the right small business bank is highly important to business success. At CBC, we’ve been in business with businesses for over 90 years. We offer a wide array of small business products and services and are happy to help your small business. Contact us today to discuss how we can help.

What to Look for in a Bank Account for Your Small Business

Learn how to find the right business bank account for your small business.

Choosing the best bank for your business is a lot like selecting the right job candidate to hire. You need the bank to have the right attributes and abilities so it helps you, the business owner, reach your goals and move your business forward.

To entice new small business owners and entrepreneurs, banks and credit unions offer a variety of bonus features with their business bank accounts. If you’re looking to open a small business account, there are some popular extra services you want to look for. However while some features may be included at no extra charge as part of a bank’s business services, others come with additional fees.

What are business banking services?

Banks provide business-specific financial services that help business owners manage their money. In addition to basic checking account services that allow business owners to deposit funds and write checks, they may also allow businesses to transfer money by Automated Clearing House (ACH) and wire. Banks may also provide business credit and debit cards, merchant services and business loans. Here are four banking services you should take advantage of.

Business checking with interest

Opening a checking account that has a low balance minimum and allows you to earn interest helps you avoid fees and earn interest on your funds. Online banking and mobile apps help you manage your money so you can keep abreast of your account and quickly detect fraudulent activity and low balances.

Treasury management

Treasury management helps you balance and manage the funds in your business bank account. It is meant to minimize a company’s financial risk. Through an online platform, it places all your business’s financial information under one roof. An online treasury management system provides convenient access to your business’s online banking, wire transfers, remote deposit capture, bill pay, ACH payments and collections. Many have a block and filter feature to help you monitor ACH activity on your account.

Money market accounts

This is a great way for small businesses to earn interest on the money they hold in their accounts. Not only are money market accounts Federal Deposit Insurance Corporation-insured, but they earn higher interest rates than checking accounts. Money market accounts minimize the risk of investing because you always have access to your money – you can withdraw it at any time without penalty, though there may some restrictions on the number of transactions you can make each month.

Business credit cards

A business credit card is convenient to have. Look for one with a low-interest rate that helps you earn points and rewards. These are beneficial because they help you keep your business expenses separate from your personal purchases, build a business credit history and cut down on reimbursement paperwork.

What is the difference between commercial and business banking?

There are a few ways to bank in business and knowing the difference will help guide you to the resources you need. Most banks have a commercial and a corporate division. Commercial banking differs from corporate banking in that commercial customers are primarily individuals and small business owners instead of large corporations. Commercial banking services typically include merchant services, commercial loans, global trade services and treasury services. Like retails banks, they offer checking and savings accounts.

Corporate banking is a specialized division of a commercial bank. It offers credit, cash and asset management and insures large, small and midsized corporations. Corporate banking usually provides higher profits for banks because of the large amounts of money and interest involved with corporate loans.

Sometimes the two divisions overlap in terms of their services, but the real difference is in the clientele and the profits each banking type earns.

What is a business banker?

A business banker works closely with clients to determine which banking products and services best fit their needs, such as business checking accounts, credit cards, treasury management, loans, even payment processing. They may be able to reduce or waive fees in some instances and may be able to offer better terms, such as lower fees or interest rates on loans. They may also offer financial insights and recommendations to help you meet your business goals.

When choosing a bank, small business owners should look for one that gives them access to a business banker with whom they can meet regularly to review their business’s finances. This is an important factor, because the right banking relationship can provide you with valuable financial advice and improve your chances of gaining funding and receiving favorable terms.

What small business banking services should your bank offer?

Small businesses need a variety of business banking services. You want to choose a bank that offers a full range of services so it supports your banking needs as your business grows. Here are some of the features to look for.

Convenient Automated Clearing House access

ACH allows money to be transferred electronically without using paper checks, wire transfers or cash. It can be used for both payables and receivables. Businesses often use it for payroll, loan payments and business-to-business payments. They also use it to accept payments from customers, particularly for large invoices and recurring charges.

The cost to use ACH varies by bank. Some charge a flat fee or a small percentage for each transaction, while others charge a monthly fee for a certain number of transfers. Before you sign up with a bank, ask what it charges to use this service.

Accounting software integration

Integration with your accounting software can make all the difference when it comes to managing your business bank account. It allows you to track your finances and monitor your cash flow daily. It also helps you avoid accounting mistakes because it automatically records the money moving in and out of your accounts.

Tip: In addition to using top accounting software, your will also want to find a small business accountant who helps ensure your finances are kept in proper order.

Payroll services

As small businesses hire more employees, a bank-offered payroll service may simplify bookkeeping for busy small business owners. “If you don’t quite have the budget for an independent bookkeeper, many financial institutions offer access to payroll software or services to help you get things done,” said Jennifer Martin, a small business coach and owner of Zest Business Consulting.

Payroll services are also offered by independent payroll companies. Before signing up for the service through your own financial institution, compare the features of bank-offered programs against those offered by outside companies, advised Rohit Arora, CEO of Biz2Credit, an online credit resource for small businesses. “In the case of bank-offered payroll, one should look at what happens in case of insufficient funds,” Arora said. Make sure to compare the fees banks charge with those charged by independent payroll service providers, Arora said.

FYI: When choosing online payroll services, be sure it is easy to use, can grow with your business, has the features and tools you are looking for and fits within your budget. In addition, it should offer numerous ways to pay employees, which include direct deposit and via direct deposit alternatives like paper checks and online banks.

Online banking

You should be able to transfer money, pay bills and deposit checks all from your computer or phone.

You may be able to save money on banking services if you choose an online-only bank, because fees are often lower since the bank doesn’t maintain a brick-and-mortar location.

Fraud insurance

One new feature popping up in banking packages is fraud insurance coverage. “Fraud insurance is provided by the lending institution to prevent any loss in the business checking account because of fraudulent transactions,” Arora said.

Arora explained that fraud insurance is important for business checking accounts that give more than one person access to the account, especially when the accounts normally have multiple daily transactions.

“It’s important to have fraud insurance included so that it not only prevents any loss of money through fraud but also prevents any bounced checks by the vendors,” he said. “This can lead to adverse remarks on the business’s credit.”

Retirement accounts and health savings accounts

If you’ve been thinking about offering your employees retirement plans, such as 401(k) plans or pensions, look beyond your insurance agent to your bank, Martin said. Increasingly, banks are offering retirement account setup and maintenance as a bonus feature for their business customers. This is an attractive incentive when hiring employees.

“Retirement benefits can be a great way for you to more deeply invest in your staff and may be the difference between a great job applicant choosing you over your competition,” Martin told Business News Daily.

If you plan to offer health insurance to your staff, using your own bank to make deposits into the health savings accounts (HSAs) for employees simplifies the process. You may even save a little money by doing this.

“Some employers will save money on their payroll taxes as a result of making deposits directly to an employee HSA account, 401(k) or supplemental insurance program,” Martin said.

Discounts on business-related items

Money-saving offers from other companies are valuable bonus features that are available with some small business banking packages. Martin noted that some banks offer discounts on partner goods and services because of the sheer volume of purchases by bank customers.

Ask your bank for a list of partner companies offering discounts to its small business banking customers. Typical partners include hotels, insurance companies, airlines and office-supply stores.

Control over employee spending on company credit cards

One risk of issuing company credit cards is that staff may use them for nonbusiness expenses. A service that gives small business owners control over staff spending can reduce that risk.

“Busy employers are concerned about how much or what their employees are spending on their corporate credit cards,” Martin said. “One of the newest features added to certain banks’ offerings for small business owners is Visa card payment controls.”

This feature lets small business owners set limits on daily spending, the days and times of transactions, as well as the locations or geographic areas where the cards can be used.

Banks regularly offer new features to their business customers. Keep your eyes open for features such as access to peer groups, bank blogs with useful business content, business-related classes, educational materials and financial planning services.

Which bank is better for business?

Finding the right bank for your business requires some research but is well worth the effort. Look for a bank that assigns a business banker to your account, and offers a full suite of business banking products and services, including business checking and money market accounts, online banking, complete payroll solutions, business credit cards and fraud insurance.

Additional reporting by Sarita Harbour, Business News Daily contributor.

Business Banking

What Is Business Banking?

Business banking is a company’s financial dealings with an institution that provides business loans, credit, savings accounts, and checking accounts, specifically designed for companies rather than for individuals.

Business banking occurs when a bank, or division of a bank, only deals with businesses. A bank that deals mainly with individuals is generally called a retail bank, while a bank that deals with capital markets is known as an investment bank. There are some banks that deal with both types of clients.

Key Takeaways

Understanding Business Banking

Business banking is also called commercial or corporate banking. Banks provide financial and advisory services to small and medium businesses as well as larger corporations. These services are tailored to the specific needs of each business. These services include deposit accounts and non-interest-bearing products, real estate loans, commercial loans, and credit card services. Banks may also offer asset management and securities underwriting to their corporate and business clients.

In the past, investment banks and retail/commercial banks were required to be separate entities under the Glass-Steagall Act—also known as the Banking Act of 1933. That changed in 1999 after parts of the act were repealed. Under the new rules, banks could offer business, retail, and investment banking services under one roof.

Services Offered by Business Banks

Business banks provide a wide range of services to companies of all sizes. Aside from business checking and savings accounts, business banks offer financing options, cash management solutions, payroll services, and fraud protection.

Bank Financing

Bank financing is a primary source of capital for business expansion, acquisitions, and equipment purchases, or simply to meet growing operating expenses. Depending on a company’s needs, business banks can offer fixed-term loans, short- and long-term loans, lines of credit, and asset-based loans. Banks provide equipment financing, either through fixed-loans or equipment leasing. Some banks cater specifically to certain industries such as agriculture, construction, and commercial real estate.

Cash Management

Also referred to as treasury management, cash management services help businesses achieve greater efficiency in managing their receivables, payables, cash on hand, or liquidity. Business banks set up specific processes for businesses that help streamline their cash management, resulting in lower costs and more cash on hand.

Banks provide businesses with access to Automated Clearing House (ACH) and electronic payment processing systems to accelerate money transfers. They also allow for the automatic movement of money from idle checking accounts into interest-bearing savings accounts, so the cash surplus is put to work while the business checking account has just enough for the day’s payments. Businesses have access to a customized online platform that links their cash management processes to their checking and savings accounts for a real-time view of their cash in action.

Payroll Services

Many banks are able to provide payroll services for small businesses. If your business is new or too small to incur the expense of a bookmaker, many banks provide software or specific services specifically geared towards payroll management. Aside from banks, there are many independent payroll service providers. It’s worth comparing the costs and benefits of the two.

Fraud Protection

Fraud insurance is offered by banks to protect businesses from any sort of fraud that has occurred in their checking accounts. These can include problematic checks from vendors or employee fraud that can result from too many people having access to accounts, making transactions difficult to trace.