Difference Between Corporate Banking and Business Banking

Edited by Diffzy | Updated on: April 26, 2022

       

Difference Between Corporate Banking and Business Banking Difference Between Corporate Banking and Business Banking

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Introduction

Business banking or corporate banking is a sector specially designed to fulfil the needs of businesses. It provides essential business services like a large loan, financial management, cash management, etc. The main focus of these banks is to fulfil the needs and demands of the businesses. Also, it is not affected by the size of the business. It provides loans for every individual business whether it is small or large.

Corporate banking is a part of business banking. It provides services only to businesses, not individuals. Also, opening an account in a corporate is more difficult than opening an account in business banking.

Corporate Banking vs. Business Banking

Corporate or business banking is the biggest sector of banking. It allows individuals to deposit their money in the form of fixed deposits, saving accounts, etc. Then, they provide loans to the businesses at a cheaper rate of interest. Since the amount required by businesses is quite higher, the amount rate of interest also increases.

The main purpose of corporate banking is to generate money. And, the main source of their income is the rate of interest difference and transaction fee. The difference between the rate of interest given by banks and the rate of interest charged by banks on their loans is the key source of their income. Whereas, transaction fees is the amount charged by the banks for easy and efficient transfer of the money.

Though, both options are used by banks to earn money is efficient. Banking also launches various schemes to increase their profit.

Next is corporate banking which is specially designed to meet the needs of the businesses. The work area of corporate banking includes financial management, foreign exchange, payment, paid solution, etc.

The main source of income of corporate banking is credits and loans. Credits are a type of loan sanctioned for a specific period. The business has to return this money in a certain period. The banking charges a minimal amount of interest during this period. After the given period, it starts taking interest at a higher rate. It also provides the service that the businesses don’t need to sanction their money at a single time. And, the rate of interest will be charged according to withdrawal.

period. In loan section, corporate banks a certain amount of rate of interest for a specific period of time in this system, the business need to withdraw his money at a single time. And, the interest will be charged for the total amount. Corporate banks are allured more towards loans because it gives them higher interest rates.

Difference Between Corporate Banking and Business Banking in Tabular Form

Table: Corporate Banking vs. Business Banking
Parameters of comparison
Corporate banking
Business banking
Consumers
Businesses
Public
Working scale
Smaller scale
Larger scale
Major source of earning
Credits and loans
Interest rate difference, transaction fees
Services provided
Liquidity management, foreign exchange, payment, paid solution, lending finances
Loans, fixed deposits, saving accounts, instant credit loans
Authority
Board of directors
Individuals

What is corporate banking?

Corporate banking is a part of business banking that were specially designed to provide facilities to businesses. It works on liquidity management, foreign exchange, payment, paid solutions and lending finances. However, corporate banking was specially designed to deal with businesses.

The main source of income of corporate banking is credits. It offers the highest pay for banks. The bank provides credit to many companies. Banks provide a loan to the company that acts like a credit card for the companies. Through this, company can draw limited money that has to be returned before a certain period.

Corporate banking charges a certain amount of interest in these credits. These credits are extremely low. But the number of loans are always high. Thus, the percentage value is also higher.

Corporate banks also offer second lending services. In this system, a specific amount of money can be drawn at the start of the system. Then, it is repaid at the end of the term. Companies carry out their whole work with the help of this money. On the contrary of credits, loans are more profitable to the company’s treasury because they provide them extra charges since companies withdraw the whole money in the starting.

Apart from credits and loans, corporate banking also provides cash management and trade finance for the companies. In simple terms, corporate banks are milestones in the development of small businesses. It supports all businesses whether large or small.

Corporate banking also works as a loss leader. Corporate banks provide loans to the public and they use different tactics to cover up their losses. And, since a corporate bank is for people, the risk of loss is low. On the contrary, corporate banks may have to face losses every time. In this time, corporate banks work as a loss leader. It provides financial support to the company and helps it to rise again.

Companies that work in the basic infrastructure need more money at the time of manufacturing. For example, manufacturing companies like transportation, heavy machinery, information technology, raw material building industries need higher investment in starting. However, these companies make an extra profit in the end.

Apart from these, corporate banking also offers portfolio analysis, equity analysis, debt and equity restructuring, etc. The employers of these companies get retirement plans and healthcare plans.

Importance of corporate banking

Corporate banking offers its services to all businesses, whether it is small, medium-sized or large companies. The financial support provided by corporate banking is the need of every sector.

The accounts in the corporate bank are opened through a specific process. First, it needs to get the consent of the board of directors of the company. It involves various people. The treasure of corporate banking is opened only for an authorized person. Hence, companies need to follow a certain path.

Corporate banking is an independent institution. It is not controlled by others. The assets of the company are completely companies property. It is controlled by board members but it is not their sole property. It gives a sense that the board of directors are just a coordinator and the main assets don’t belong to them.

Corporate banking is based on valuation and share prices. It is built by the credit history of the bank that is nothing but the conductor functioning of the corporate businesses.

Corporate banks involve highly paid jobs. The work of corporate banks are complex and require skilled expertise to handle them. This skilled expertise needs high paid jobs. Corporate banking as a career is an amazing option. It involves smaller to big posts. But the topography of the career plane is not higher.

The demand for corporate banking is increasing every day. As more and more businesses are establishing every day, they need specific services for growing their businesses. Thus, the need for corporate banking came into being. First, its need was felt in the 19th century in the US. Gradually, the concept of corporate banking started to develop between people.

What is business banking?

Business banking or commercial banking is a type of banking that deposits money from the public and businesses and then use this money to provide loans to others. The difference between the interest rate of deposit and withdrawal is the sole source of income of the bank. Commercial banking includes both public sector and private sector banks.

Corporate banks are meant to generate income. It provides alluring offers to the public to attract more and more of them. Then, they accept money from them in various ways like fixed deposits, saving accounts, investments, etc. It is the asset of the banks. These deposits are returned to the public whenever they desire. Banks provide an interest rate on these deposits.

Next, corporate banking provides loans to the people. It might be various loans like home loans, personal loans, gold loans, etc. These loans are carried out at a higher interest rate. It is generally higher than the fixed interest rate of deposits. The difference between the interest rate of deposits and the interest rate of loans is the main source of the income of banks. Commercial banks have higher interest differences as compared to the other options.

Commercial banking offers several services. Some of these include deposits, providing loans, transaction accounts, cash management, trajectory management, private equity fund, bank drafts and bank checks, etc.

Payroll services are a deciding feature of business banks. Small businesses that don’t have assets to take higher loans can go with payroll. It provides financial support to small businesses. However, there are various payroll providers outside the banks. And, it is important to compare the pricing of different payrolls.

Cash management is an effective role of business banks. Banks get a large sum of money every day in the form of cash. That’s why it needs an effective management system to manage this cash. The business bank works with an effective cash management system that manages the cash that comes and goes from the bank every day.

Like many other departments, business banks are also changing along with time. Now, it offers many services at the tip of your finger. The services of the banks are provided in a specific app from which every feature of the bank can be availed. Now, banks provide assets through automated clearinghouses and electronic payment processing systems. Even automated money transfer is offered in certain banks.

Fraud is an important problem today. Business banks offer insurance for fraud safety. But it includes only check that might be problematic for vendors, fraud companies or anywhere else. The money lost in these transactions will be recovered with the help of insurance. However, in these frauds, too many people are involved. And, it is difficult to estimate who the actual culprit is.

Types of business banking

Public sector banking

Various banks in India work under the government of India. These banks were nationalized from time to time to make them under the control of the government. Today, about 85 per cent of the total banking system is under the control of public sector banking. It provides funding to the public.

The main aim of finding public sector banking is to provide the general public with easy and affordable loans.

Private sector banking

The private sector is also important. It involves private or individual liability more. About 10 per cent of the total account in the bank is private.  It offers personalized services to people, especially high-income earning people.

Foreign banks

Foreign companies are those companies whose headquarters and branches are located in foreign countries. It plays a crucial in supporting the economy and foreign exchange. It helps add to the overall income of that state. Apart from this, it also helps the people living outside the country to exchange their money and other banking needs.

Difference Between Corporate Banking and Business Banking in Points

  • Corporate banking works on a smaller scale to provide financial help to customers. While business banking works on a larger scale to provide services to the people. The main focal point of business banking is to provide services to the people.
  • The scale at which work is done in corporate banking is relatively small. Because it provides services only to the businesses. However, business banking works on a larger scale because it provides services to the public as well as businesses.
  • The major source of earning of corporate banking is credits and loans. While the main source of income of business banking is interest rate difference and transaction fees.
  • Corporate banking is handled by the board of directors. However, business banking is handled by an individual.

Conclusion

Corporate banking is a part of business banking. It was mainly developed to differentiate between the work of public and businesses. Also, it ease the overall work of the banking. Public and business involve two completely different system of work. And, appreciating this difference, a special unit named corporate banking was formed to decrease the overload in one bank. Also, it can decrease the dependence only on one bank. Today, corporate banking has developed as a separate identity.

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"Difference Between Corporate Banking and Business Banking." Diffzy.com, 2022. Thu. 29 Sep. 2022. <https://www.diffzy.com/article/difference-between-corporate-banking-and-business-banking-18>.



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