A business bank offers commercial banking services, including loans and financial advice to corporations. They often sell debt to third parties to avoid committing their own resources and act as intermediaries between investors and organizations. They may also provide project appraisals and charge commissions for their services. Sometimes, they use their own resources to structure financing and hold onto the debt asset.
A business bank is a type of bank or other financial institution that provides services very similar to those offered by a merchant bank. The term is generally associated with French institutions that offer commercial banking services. Among those services are loan options for various types of organizations and the provision of financial advice to corporations regarding selected financial options and events.
While a business bank provides loans to businesses and other types of organizations, the process used to extend that financing in some way from other banking institutions. Typically, the debt is sold to a third party shortly after the loan is made. Selling debt as an asset to investors has the benefit of allowing the business bank to avoid committing its own resources for extended periods of time. Assuming that market conditions lead to the sale of the debt, the bank will continue to make a profit while the debtor pays the loan balance directly to the new investor.
In a sense, a business bank can be seen as providing intermediary services to both investors and organizations that require an infusion of cash. By matching the needs of the loan applicant with the interests of an investor, the bank negotiates the agreement between the two parties and functions as the mechanism for establishing the loan. Once the loan is approved and extended to the debtor, the loan is sold to the investor, allowing the bank to move on to the next business transaction.
When serving as an advisor, a business bank may provide services such as project appraisals, essentially helping a company determine whether a given project can generate the desired type of return. Financial institutions of this type often also provide services related to the issuance of initial public offerings or IPOs, as well as acting as an intermediary in acquisitions that are made between two companies. In exchange for providing these types of services, the business bank will often charge some type of commission, payable at specific points during the process.
There are situations in which a business bank will choose to use its own resources to structure some type of financing for a business. While this is more likely to happen with short-term financing, there is also the possibility that the bank will extend long-term financing and hold onto that debt asset for as long as it lasts. If officers of the business bank see specific benefits in holding the debt rather than selling it to an investor, they may approve the loan with the express intention of providing the financing and managing the asset until the debtor pays off the balance in full .
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