Merchant banking offers specialized financial services to large corporations and high-net-worth individuals. The high-end services available through this type of financial institution aren’t available to the general public. But if you or your company meet the qualifications, you’ll find several options to choose from.
A financial advisor can help you evaluate the details of your situation to determine the best banking situation for your needs.
What Is Merchant Banking?
Merchant banks offer a collection of financial services. These banks often focus on international trade services and work with multinational corporations.
Specifically, these are non-depository financial institutions. Five common services include:
International loan services. Obtaining financing for a new business investment or personal purchase abroad can be challenging with a regular retail bank. Merchant banks make this type of transaction more accessible due to specialized underwriting services. A few of the types of underwriting you might find include real estate loans, trade finance, and foreign investment.
Underwriting services: A major service offered by most merchant banks involves underwriting loans. As you seek out a way to cover financing costs abroad, this type of bank can dive into the underwriting required to make a deal happen. Typically, merchant banks are known for developing creative credit products that can help move your plans forward.
Currency exchange services: When deals occur across borders, understanding the implications of currency exchange can come in handy. Throughout the process, a merchant bank can assess the currency exchange risks and assist in smoothing the financial fallout for both sides of the deal.
Fundraising services: If the merchant bank itself is unable to underwrite the entire cost of a project, it might assist you in finding other ways to raise the funds. However, this type of service is often offered on a case-by-case basis.
Financial advising: The international trade marketplace is a volatile place. Although you may have an excellent grasp of the market, it never hurts to have an experienced set of eyes take a close look at your plans. In some cases, merchant banks offer financial advising services to select clients.
Can I Open an Account at a Merchant Bank?
No, these types of financial institutions are non-depository.
With that, these banks don’t accept deposit funds or allow withdrawals. In other words, you won’t find a regular old checking account or savings account available through these types of banks.
Even if you have extensive capital that needs a home, you’ll need to look elsewhere for a deposit account option.
Examples of Merchant Banking
Merchant banking services aren’t available at your local bank. Instead, you’ll need to seek out the assistance of a specialized bank. However, some large banks have merchant banking departments in addition to their retail options.
A few of the most popular merchant banks include Citigroup, J.P. Morgan, and Goldman Sachs. However, there are plenty of other options out there. If you aren’t sure where to turn, then consider asking for guidance from a financial advisor.
Merchant Banks vs. Investment Banks
It’s easy to confuse merchant banks with investment banks. However, investment banks are different because they underwrite securities and sell them to the public through IPOs.
Typically, investment banks are paid for advisory services, and charge interest and fees.
On the other hand, merchant banks are fee-based operations that don’t sell securities to the general public.
When Does Merchant Banking Make Sense?
Merchant banking is not the right option for most situations. But when the international element comes into play, merchant banking might present the best opportunity for closing a deal.
Here are two instances when merchant banking might make the most sense:
Your company wants to buy a foreign company: When a company you want to buy is based in a foreign country, a merchant bank, can walk you through the legal and regulatory issues of acquiring the new company. And, when the numbers make sense, they can set up the financing to make the deal happen.
Your company wants to buy a piece of real estate abroad: As you expand your company into other countries, a merchant bank, can help you streamline the process to close the deal.
Bottom Line
Merchant banking provides an opportunity for companies and high net worth individuals to get the funding they seek for international projects. However, you won’t be able to open an account because these non-depository institutions don’t provide services to the general public.
Financial Planning Tips
- Before you move forward with merchant banking services, consider discussing your needs with a financial advisor. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Merchant banking services aren’t the right fit for everyone. But high net worth individuals can find their services helpful. This guide can help you calculate your net worth.
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