Business Knowledge Hub

What is the Difference Between Commercial and Business Banking?

As a business owner, it's likely that you will deal with business banking, so it’s important to understand the various banking terms. Things can get confusing with UK and US banking terms, which can differ in meaning. Read on to find out the differences, and how to choose the right approach.

Commercial banking is a term mainly used in the US that is synonymous with business banking in the UK, providing services for a range of businesses from SMEs to multi-national organisations. In the UK, the term commercial banking may be used to differentiate between services dependent on the size of the business.

What is business banking?

A business bank account allows you to separate your business finances from your personal accounts, making it easier to keep track of your company's funds.

Traditionally, business banking has been provided by high street banks. However, in recent years there’s been a revolution in banking, with online banks - also known as challenger banks - providing more competition in the business banking sector.

Today, businesses have much more choice, with online banks being able to provide accounts with online tools which help businesses keep track of things like tax bills and expenses.

Typical business bank account features

  • Deposits and withdrawals
  • Standing orders and direct debits
  • Bank transfers
  • Overdraft facility
  • Access to debit and credit cards
  • Online banking
  • Telephone banking
  • Mobile app
  • Accounting tools

What are the main differences between business banking and commercial banking?

In the UK, business and commercial banking are often the same service, offering similar features. However, consumers can easily get confused because of the different names. Santander, Lloyds and HSBC have commercial banking operations for instance.

Sometimes, in the UK, the terms business banking and commercial banking refer to services aimed at businesses of different sizes and complexities.

The term business banking is more often used to refer to small and medium enterprises (SMEs); companies which have a small number of staff and moderate levels of turnover and income.

Commercial banking can often refer to enterprises on a larger scale. Medium-sized organisations have more complex banking needs and tend to use commercial banking accounts, to handle factors like overseas operations and complicated supply chains.

A commercial bank can describe a banking organisation which is designed to provide for large and medium businesses - the term can also refer to a branch of a bank dedicated to commercial clients only.

Corporate banking is another term you may see when looking for business bank accounts. Corporate banking clients will often be organisations with multiple entities, with issues connected to cash flow and working capital management.

How to choose between a business bank account and a commercial bank account

This will depend on the size of your company, as well as a range of other factors.

A business bank account should be the right choice for a small business, whereas a commercial bank account might be a better choice for medium to large businesses.

Remember, as discussed above, commercial banking is a term mainly used in the US that is synonymous with business banking in the UK, providing services for a range of businesses from SMEs to multi-national organisations. In the UK, the term commercial banking may also be used to differentiate between services dependent on the size of the business.

The most important step to take when looking for business bank accounts is to compare your options. Decide which account offers you the best tools and features including interest. Perhaps you might decide to open an account with a high interest rate as a dedicated savings account, to accumulate the highest levels of interest possible.

You’ll also want to look at the account fee, but contrast this with the free account duration available first, as some accounts will attempt to entice you with long free account durations. However, these accounts may charge for day-to-day actions like transferring money.

Don’t forget to check if there is an overdraft facility available. Remember, overdraft facility interest rates for personal banking accounts are set to almost double by April 2020, so if you are a sole trader or small business, it’s worth exploring if overdraft interest is lower on a business account, and if indeed you are eligible for a business bank account.

In our business bank accounts comparison table, you can compare the various features of business bank accounts, such as maximum interest (AER), free account duration, as well as account fees and overdraft facilities. Read our guide to learn if you need a business bank account.

Written by Peter Adams

    Published on 26-02-2020

    Updated on 02-04-2020

Peter reports on a number of areas in the personal finance sector, with a particular interest in supporting businesses and individuals in the UK services industry.

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