DEALING WITH FINANCIAL INSTITUTIONS

FINANCIAL INSTITUTIONS An institution that provides financial services for its clients or members 3 types of financial institutions Depositary Institutions Contractual Institutions Investment Institutes

DEPOSITARY INSTITUTIONS These institutions accept an manage deposits They make loans Include: Banks Credit Unions Trust Companies Mortgage Loan Companies

INVESTMENT INSTITUTES An investment bank is a financial institution that assists individuals, corporations and governments in raising capital They help companies involved in mergers and acquisitions Some found in Canada: HSBC The Investors Group BMO Capital Markets CIBC World Markets TD Securities ING

SERVICES PROVIDED TO SMALL BUSINESSES Businesses deal with financial institutions quite frequently, even on a day-to-day basis. There are a variety of services that they provide to business, such as: Nightly deposits Automatic payroll deposits Bank reconciliation Everyday account activities Loans Investment

NIGHTLY DEPOSITS Some small business do not have a safe on location to keep money, important documents, banking records, etc. safe at night For these businesses, they are required to fill out a nightly deposit slip and put in a deposit bag, along with money to deposit at a bank Example: Most stores in the Lynden Park Mall use nightly deposits with CIBC

AUTOMATIC PAYROLL DEPOSITS Some businesses pay their employees with cheques, but many business use automatic payroll deposits Employees are paid directly to their financial accounts every pay period – every 2 weeks, every month, weekly – whatever the business uses Employees are required to provide financial institution information when they are first hired – VOID cheque or have the institution fill out a direct deposit form

BANK RECONCILIATION Sometimes a bank will have different account balances than the company’s own account records. This can be caused by: Cheques issued have not been presented to the bank Banking transaction has not yet been recorded by the company Either the bank or the company made a mistake  Bank reconciliation is a process that explains the difference between the bank balance shown in an organization’s bank statement and the amount shown in the organization’s own accounting records at a particular point in time.

SHORT-TERM FINANCING Many businesses need short-term financing, especially during their startup phase. During this time businesses can secure loans from financial institutions. There are three common forms of loans that businesses deal with Secured – A loan where the borrower puts up collateral such as a car or house Unsecured – No collateral is needed – credit cards, personal loans, bank overdrafts Demand – Loans with no repayment dates and a floating interest rate that changes. Financial institutions can ask for loan to be repaid at any moment.