Corporate Banking vs Commercial Banking

Every bank divides its business lending somewhere between a company whose owner signs the guarantee and a company whose treasurer sends the compliance certificate. Below the line is commercial banking — owner-managed, family and mid-sized businesses, the whole of this site's case files — and above it is corporate banking: listed and large private groups, several banks, rated or near-rated debt, a balance sheet that carries the credit without anybody standing behind it. Banks place the line by revenue or exposure and place it differently from each other, so the threshold is not the useful part. The useful part is what changes when a borrower crosses it.

Four things do. Who is across the table — an owner whose house is in the security, or a treasurer and a board who answer to shareholders. How many banks — one, or a club or syndicate in which yours is a share. What the security is — everything the business owns plus the owner, or the balance sheet alone, often unsecured. How the terms are set — a standard package the desk applies, or a negotiated one the borrower's lawyers have read as closely as yours. Corporate Lending and Credit Risk walks each of these; this page is the comparison.

The commercial banker reads a business from its numbers and its people, because at that size the two are the same thing: the management read is half the file. The corporate banker reads a company from its accounts, its structure and its market, and the people are a governance question rather than a character one. Both are lending; both are the Three Questions — will the money come back, is the bank paid enough for the risk, what is the way out if the first answer is wrong — asked of evidence that looks quite different.

The second way out gets thinner. A commercial file has a second way out a desk can see: the assets, the guarantee, the sale of the business. A corporate file often lends unsecured against a balance sheet whose second way out is the debt markets — the company's ability to refinance — which is a way out that closes exactly when it is needed. Corporate credit therefore leans harder on the first way out, and on the covenants that give the bank a seat at the table before it fails.

The decision is shared. In a syndicate the bank holds a share of a facility it did not structure alone, reads an agent's pack rather than its own analyst's, and votes on waivers with banks whose appetite differs from its own. Issue 07 is the smallest version of this — a listed retailer, a four-bank club, a dividend consent one lender declines with its reasons tabled for the rest of the club — and it is the closest the site's files come to a corporate desk. The price is explicit. Corporate pricing is built from a rating, a probability of default and a loss given default, and argued in basis points; How Banks Price a Business Loan describes the same machinery at the commercial scale, where most of it is inside a margin the desk does not decompose in front of the client.

The reading order. A corporate analyst with a two-hundred-page information memorandum and a commercial analyst with three years of management accounts are both looking for the same first thing: whether the cash the business generates covers the debt it is asking to carry, through a bad year and not an average one. The debt service cover arithmetic is the same; the leverage question is the same; the quality of earnings question is, if anything, more important on a company whose accounts were built to be read. A banker who learned to read on the commercial side reads corporate files well. The reverse is less reliable, because the commercial file asks for a judgment about people that the corporate file lets a rating stand in for.

Corporate teams are smaller, pay more at the same title, and are harder to enter from outside. Commercial teams are larger, closer to the owner, and produce more decisions per analyst per year — which is where judgment is built, and why the site sits on this side. The career path runs through both: analyst, lender, the fork between relationship and credit, and senior seats that on the corporate side are called coverage and on the commercial side are called the portfolio. The corporate coverage banker and the business relationship manager are the same seat at two scales. The interview is the same too: the panel wants the order you read in, whichever size of file it hands you.

Choose corporate if you want structure, scale and a market view — if the interesting question to you is how a capital structure should be built and priced, and you are content to be one bank among several. Choose commercial if you want the whole decision in your own head, the owner across the table, and the judgment built from reps: whether this business, with these people, through this cycle, pays the money back. The site's week on the desk is the commercial version of the job; the larger comparison, with investment banking, is here.