This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

A commercial bank is probably what comes to mind when someone hears the term “bank.” This is where individuals or businesses go to handle their day-to-day banking needs.

Commercial banking typically encompasses a wide variety of financial products, including checking and savings accounts, credit lines, and various types of loans for both personal and business financial needs. For business owners to best utilize these types of products and services, it’s important to understand how commercial banking functions.

How do commercial banks work?

Commercial banks commonly offer a range of products and services to individuals and small- to medium-sized businesses. These products might include checking and savings accounts, credit cards, loans and credit lines, and basic investment products such as Certificates of Deposit (CDs).

To make money, commercial banks charge fees and service charges on the products they provide. The fees and service charges vary depending on the type of product. For example, some accounts charge monthly maintenance fees, while others may only charge fees when minimum balances are not met or for overdrafts, non-sufficient funds, or late payments. Commercial banks also earn revenue by charging interest on loans and credit lines.

Traditionally, commercial banks have operated in brick-and-mortar buildings where customers can come in person to conduct banking tasks. However, as internet banking has become more popular, most commercial banks allow customers to do those same tasks online, including depositing and transferring funds and making loan payments. Some commercial banks operate online without a brick-and-mortar location.

Commercial banking services for business owners

Commercial banks usually offer products and services tailored specifically for business owners. These business-focused commercial banking products and services may help business owners track and manage cash flow and payroll, handle transactions in various currencies, and receive the financial backing they need to grow their enterprises. Learn about some of the services commercial banks offer for business owners below.

Business checking accounts

Commercial banks typically offer checking accounts for businesses. Like the checking account an individual may use for personal finances, a business checking account provides a safe place to keep the money a business owner needs to use regularly and easily access to pay bills or make purchases.

Opening a separate business checking account can help establish credibility and professionalism. A business checking account may also simplify a business owner’s obligation to maintain tax records by making it easier to separate business expenses from personal expenses. By launching operations with a dedicated business checking account, a business owner may be better prepared for future growth.

Business credit cards

Maintaining steady cash flow can pose a challenge for small businesses, and a business credit card is an option for covering expenses when cash flow is up and down. Business owners looking to finance their operations or have access to temporary funding might apply for a credit card through a commercial bank. Using the same bank for a business’ checking account and credit card may simplify payments and approvals.

Business loans and credit lines

Sometimes business owners need to secure a separate line of credit from what may be available through a business credit card. Typically, commercial banks offer loans and credit lines as financial tools to provide new opportunities for customers, such as small- and medium-sized businesses.

Some business owners prefer loans, which provide a lump sum payment to be repaid over time with interest. Others may apply for a small business line of credit, which is a flexible funding solution that provides a business with access to an agreed-upon amount of funds to be used as needed. Business owners only pay interest on the funds drawn, possibly in the form of individual loans, rather than on the full amount available.

Managing payments

Commercial banks also offer services to small business owners that allow them to initiate and manage payments and move funds into the appropriate accounts. For example, to stay on top of monthly expenses, business owners can set up automatic payments from their business checking account to cover recurring bills or payments.

Currency exchange

Small business owners who travel internationally or conduct business overseas may benefit from currency exchange services offered by commercial banks. Financial institutions with currency exchange services can provide forecasted exchange rates for business owners who are considering working with international customers or vendors, and seamlessly convert foreign currencies to U.S. dollars when needed.

Growth and investments

Not only do commercial banks offer a safe place for customers to hold their money and access it easily, they may also offer investment services to help customers grow their funds. Most commercial banks offer low-risk investment options, such as certificates of deposit (CDs). Some also offer full brokerage and investment services. Commercial banks may charge fees for managing their clients’ investments.

What is the difference between commercial banks and other financial institutions?

Commercial banks may be the most common type of financial institution, but they are not the only type of bank. The term “commercial banking” is often misinterpreted. The easiest way to differentiate between commercial banks and other types of financial institutions is to consider the products and services the bank offers and their primary, target customers.

Commercial banks vs. investment banks

Many commercial banks offer investment services, but investment banks specialize in investing and related services. Commercial banks typically serve individuals and small- to medium-sized businesses, while investment banks provide services to large corporations and institutional investors.

Commercial banking vs. retail banking

A broad definition of commercial banks includes all banks that accept deposits and make loans. Many banks use the term “commercial banking” to more narrowly define the part of their operation that serves business and other commercial customers. Retail banking, by contrast, is the side of the business that serves individual consumers.

Benefits of commercial banking for businesses

Business owners may experience a number of benefits by using a commercial bank for their financial service needs, such as:

• Flexible financing terms: Commercial banks may offer flexible financing to meet the needs of businesses.
• Insured deposits. Commercial banks are insured by the Federal Deposit Insurance Corporation (FDIC). Insurance is usually up to $250,000 per depositor, per account type, per institution.
• Accessibility and online banking. Most commercial banks offer online and mobile access to accounts, loan funds, and other services that may make it easier for business owners to handle banking tasks and stay on top of their finances from wherever they are.
• Investment advice. For business owners interested in growing their company’s assets, many commercial banks offer low-cost investment advice and services for clients.

For busy business owners, handling both business and personal banking in one place can simplify financial management. A commercial bank can prove a valuable partner for a business owner in building a business as well as personal wealth.

Entrepreneurs know that starting a small business often begins with a great idea, followed by the need for the funds to bring it to life. While launching a startup might require a more substantial investment, it’s possible to bring a business idea to life on a much smaller budget.

Starting a business with no money or limited funds may seem daunting, but it can be done with the right planning.

The material made available for you on this website is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.