Banks generally help people and businesses manage cash and liquidity. They typically organize around a specific customer type, providing services that the customer needs most. Commercial banking, for example, caters to small and mid-size businesses.
Read on to learn what commercial banks do, how they differ from retail or investment banks, and what to look for when choosing a commercial bank.
What is commercial banking?
Commercial banking is a set of financial services designed for businesses. Those services include things you'd expect from any bank, such as checking accounts, savings accounts, and loans. But commercial banks also have business-specific offerings like payment processing, lockbox services, international trade support, letters of credit, payroll support, asset-based loans, and working capital lines of credit.
Not all businesses need those added services, of course. That's one reason why entrepreneurs initially operate side hustles through their personal bank accounts. But there are milestones that can prompt the start of a commercial banking relationship. These include:
- Accepting check payments
- Applying for a federal employee identification number (EIN)
- Incorporating the business
- Requiring financing for business expansion
- Opening a retail location that accepts credit card payments
The IRS does require limited liability corporations (LLCs) and corporations of any size to maintain separate accounting records. Managing the business's cash flow through deposit accounts at a commercial bank supports that requirement.
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