Have you ever wondered how the “checkbook” for a large corporation is different from the one you keep at home? Or what their needs are when they go to bank to stash their money or take out a loan? If so, what you’re really asking about is the difference between commercial and corporate banking, and why corporations receive different treatment from common consumers.
A commercial bank can be thought of as what you and I typically go to when we need cash, a checking account, savings account, loans (such as a mortgage), credit, etc. These types of banks can be a physical, brick and mortar location or one of the newer online ones that only exist on the Internet. Commercial banks not only work with individuals but they can also provide the same sort of services to businesses as well. Often the loans they provide are secured (meaning there is collateral involved), but some might also provide unsecured (no collateral) ones.
If you look up the financial statements of any large corporation online (which you can since they are all available for public review as potential investors), then you’ll notice that corporations play by a completely different set of rules.
This is largely because a corporation is in itself an entity – with similar financial rights like an individual would have. Because there are often shareholders involved, special accounting practices and rules come into play that regular consumers like you and I never experience.
That’s why finance created a specialized branch of banking called corporate banking. It is designed to work with corporate entities to enhance the value (not necessarily just the income) of the company while taking precautions to reduce risk as much as possible. Corporate banking is often referred to as corporate financing or the more general term managerial finance.
A corporate banking service handles a wide range of activities such as dealing with cash flow, managing inventory, debt, credit, investments, raising capital, and even dividend payments to shareholders.
Corporate banking serves a very specific niche and can be very lucrative over commercial banking because they deal in far greater sums of money. Firms can also benefit from these practices by working with an institution that specializes in the types of tools and disciplines needed to aide corporations.
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