When businesses need to use banking services, they often do so for various reasons. Businesses sometimes need to deposit funds or withdraw to cover their working capital needs. Other times, a business may need its accounts serviced because it’s been liquidated and needs its funds distributed among creditors.
Businesses need banking services because they provide capital to fund operations and expand their businesses. Businesses may also use banking services to facilitate payments and invest in expansion or other business needs.
1. A Recession-Induced Cash Flow Crisis
During a recession, businesses often need greater access to short-term capital to finance their working capital needs. One common way banks provide this short-term liquidity is through netting and/or purchasing power. Banks generally lend funds in the form of deposits to firms during such periods of a financial crisis. However, many banks also provide these short-term funds by purchasing commercial paper, which they hold overnight within the vault system.
2. A Liquidity Crisis
A liquidity crisis is when a business cannot pay its debts. This can sometimes occur when a business has long-term obligations not covered by short-term assets. A business may also face a liquidity crisis when its operational needs consume all of its current and future assets, leaving it unable to service or pay off any of its current debt obligations in the immediate term.
3. To Store Interest
Often, businesses will need to store the interest generated by marketable securities they possess to take advantage of it over time. Banks can be used to keep these funds as either a checking or savings account while they are waiting for their interests to accrue additional value.
Banks also provide services to facilitate payments in the form of wire transfers and international money orders and checks. Banks also help to secure electronic payment systems and make deposits into bank accounts. When making payments, a business will either use a wire transfer or make a payment through a merchant service provider that employs the services of banks. Banking has been made easier with online banking services, with banks such as Evolve Bank & Trust allowing businesses to securely make payments through their computer.
4. To Allow a Firm to Diversify
A business may need to diversify its funding using financial services activities, to diversify its sources of deposits and borrowing. As such, it may occasionally decide to establish a banking service to provide access to financial services across multiple lines of business.
5. To Secure Access to Funding
A business may need to establish a banking service to secure greater access to funding. This may occur when it needs to establish a financial service that provides greater access to funding, as in the aggressive international expansion of large businesses. It might also occur when a firm needs to open branches or regional offices overseas, and it secures this by establishing multiple banking services which provide international lines of credit.
In some cases, a business may need to secure a source of short-term funding for specific purposes. Such activity could be related to mergers and acquisitions of new technology.
In conclusion, businesses need banking services from time to time to expand. In such cases, a business may establish various banking services in several places, providing greater funding access and better diversification.