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When businesses need loans, a place to deposit their money, or someone to vouch for their credit, they turn to commercial banks. So what is commercial banking? Commercial banking includes financial products and services that businesses need, including deposit accounts, loans, lines of credit, payment processing and more. If you are interested in onefinancial careerwith great entry opportunities, here's everything you need to know about the commercial banking industry.
What is commercial banking? Definition
Commercial banking is a form of banking that provides services to businesses, government agencies, and institutions such as colleges and universities to help them grow and make profits. Commercial banks make money primarily by lending money to companies and earning back interest and fees on those loans.
These banks lend money to businesses to cover supplies, real estate, employment, or other costs that the business may incur. Yet there is much more possible in this area than just lending: they provide various services to help finance companies and provide financial support.
What do commercial banks do?
Commercial banks offer businesses a wide range of banking services, including checking and savings accounts, lines of credit and lockbox services.
- Checking or savings accounts:Just as you might have your own checking or savings account, commercial banks open deposit accounts for businesses. Businesses will use their checking account to send money to their employees or for other business transactions. Savings accounts are used to store money and companies can earn interest on them.
- Credit lines:A line of credit is a way for banks to provide money to companies. This is a fixed amount that a company can print multiple times until it reaches the monetary limit. A company can then pay the money back and borrow again if necessary. Compared to loans, companies use a line of credit for smaller purchases.
- Letters of credit:When a company tries to purchase goods and services from another company or seller, the bank may issue a letter of credit. A letter of credit guarantees the company and ensures that it will pay what it owes.
- Payment processing:When customers pay the company, they can do so with a check (paper or electronic) or a credit card. Commercial banks help process these payments and protect against fraudulent transactions.
- Currency transactions: These banks can help exchange money between the company's currency and a foreign currency.
- Lockbox services:To help speed up customer payments, they will provide a business with a safe deposit box: a place where customers can send their money directly. The bank then processes these payments and credits the money to the company's account.
- Professional services:These are certain services that a bank provides to a company in exchange for a commission, such as cashing checks and drafts, paying interest or insurance premiums and buying and selling securities.
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How do commercial banks make money?
Commercial banks offer a wide range of services, but how do they make money from these services? Commercial banks make money on loans, credit card interest and fees.
A businessman can take out a loan from a commercial bank to help him get started. If they then repay the loan, they also have to pay interest, which is a profit for the bank. This process is similar to the way commercial banks make money from credit card interest. When a business pays back money borrowed for purchases on its credit card, it often also has to pay interest on those purchases.
These banks also charge various fees that they make money from, from fees for opening a new line of credit to overdraft fees if a business doesn't have enough cash to cover a purchase.
Commercial Banking vs. other forms of banking
The main difference between commercial banking and other forms of banking is to whom the banks provide financial services. Commercial banking focuses on services for small and medium-sized businesses, government agencies, and institutions such as colleges and universities. Who (or what) serves other types of banks?
| Type of banking | clientele | Learn more |
| Commercial banking | Small to medium sized businesses | JPMorgan Chase Commercial Banking |
| Investment bank | Major capital investors | Citi Investment Banker |
| Private (consumer) banking | Everyday consumers | Standard Banks Retail Banking Virtual Experience-programma |
| Private banking | Wealthy individuals and families | JPMorgan Chase Global Private Banking |
| Global banking | International companies, governments and institutions |
>>BUT:Retail vs. Commercial Banking: What's the Difference?
Career in commercial banking
A commercial banker may deal in one or more of the above products and services or specialize in a specific area. Other job titles include:
- Narrator:an entry-level position focused on corporate customer payments, deposit accounts, check cashing and withdrawals
- Credit manager:assesses applications for business loans and arranges loan agreements
- Credit analyst:evaluates a company's financial status when the company applies for a loan or line of credit
- Business Development Manager:identifies, develops and brings new business to the bank
- Relationship manager:helps acquire, retain and grow the bank's business customers
- Compliancemanager:ensures that the bank's policies meet federal guidelines
- Department manager:a senior position that oversees the bank's operations, revenues and objectives
How to get into Commercial Banking
To start your career, you need financial experience or a degree in a related field. To succeed you will need:
Education
While not all positions in the field require a degree, many employers may want a candidate with a bachelor's degree in a related field, such asfinancial accountingor finance. To advance in the field, you may also need a master's degree in business administration.
Certification
In addition to a master's degree, you may also need certifications, depending on the state you work in and the type of work you do. If you want to work in securities, insurance or credit, you will likely need a certification or license in that field. For example, if you are going to become a mortgage broker, you will need a license to originate a mortgage loan. Other common certifications include Commercial Banking and Credit Analyst (CBCA) andcertified public accountant (CPA).
Skills
Commercial bankers need thatdifficult skillsin mathematics to perform financial analyzes andsoft valueslike itinterpersonalInannouncementskills in working directly with clients.
“Be a good professional communicator (in person, by phone, email, text, etc.) and have a sense of urgency in solving your customers' problems,” Kyle Shirley, former vice president of business banking strategy at Bank of the West and current business owner of Sol Vista Roofing, says. “There are internal banking partners and teams with whom you must compete for attention to solve your customer's problem, and customers who may be slow to respond to your contact. Both require tactful perseverance to succeed.”
Advantages and disadvantages of commercial banking
This career path offers good entry opportunities, reasonable hours and good employment conditions.
“[You can] really become part of the economy with direct insight into credit markets and interest rates, and you connect with business leaders in your city,” says Shirley.
While you can have a positive impact on your customers and the economy, this career path can also require stressful and high-pressure customer relationships and work environments.
“Banks are often complex institutions,” says Shirley. "It can take some time to develop an external network."
Still deciding if this career path is right for you? Checking outIs commercial banking a good career path?.
What is commercial banking? Frequently Asked Questions
What do you mean by commercial banking?
Commercial banking is a form of banking that serves government agencies, corporations, and institutions such as colleges and universities. These banks provide these institutions with a variety of services, including checking and savings accounts, lines of credit, and payment processing.
What is the difference between banking and commercial banking?
Commercial banking differs from other forms of banking because of the types of businesses these banks serve. Commercial banking focuses on small and medium-sized businesses.
What is commercial vs. private banking?
The difference between commercial and private banking is who operates each part of banking. Commercial banking focuses on small to medium-sized businesses, while private banking focuses on wealthy individuals and families.
What are 3 examples of a commercial bank?
According toFederal Reserve, are the three largest commercial banksJPMorgan Chase,Bank of America, InCiti.
Billed credit: Vlada Karpovich / Pexels
Written by
Zoë Kaplan →
Senior writer
Read more from Zoe Kaplan
Zoe Kaplan is a senior writer at Forage. Before joining Forage, she wrote and edited career and workplace content for Fairygodboss, the largest career community for women.
