Within the overall banking scene, there is a niche banking segment that is mainly there to help out businesses and high net-worth individuals. And yes, we’re talking about merchant banking, which is going super popular these days for different reasons. For those who have no idea about what this is or what purpose do these so-called Merchant Banks serve, then just know that they are there to help out businesses and rich individuals with their money, like, they help out businesses with things such as raising money, investing wisely, and expanding their operations.
It’s just completely different from the traditional way of banking, to say the least. Though, if you’re someone who recently got to know about merchant banking, then you may be interested in knowing a little more, correct? Well, today we’re taking a good look at merchant banking advantages and disadvantages, which can be helpful for you to understand it in a much better way so just keep on reading.
Advantages Of Merchant Banking
1. Expert Financial Advice Without the Headache
See, making a decision when there is a lot of money involved isn’t an easy thing because like, if a company or business makes a wrong move in such a case, the investment will be gone for good. And that is precisely where these merchant banks can be helpful in some way. Like how? Oh, well, most of the time, they have good financial market insights, and they just not only help make the good or best investment choices, but they’re also there to back up or protect the business from risks, mainly the money traps, you know?
2. Easy Money (Well, Sort Of!)
It is true that raising capital these days has become super easy, still, it isn’t as easy as you think. For many businesses out there, it still is a big hurdle, and without money, there is no business, you know? Once again, this is where merchant banks come in to help out these businesses. How exactly? Oh, well they have a bunch of different ways to do so, like IPO, private investors, etc.
3. Risk? Managed!
We already pretty much gave it off that a big part of merchant banking is to make sure that their clients (businesses or high net-worth individuals) are protected from investment risks. Well, at least these banks try their best to do so. How do they do it? Well, they actually try to minimize losses by analysing everything in advance. Another great thing is that they’re kinda familiar with all the financial laws and regulations out there, so their clients can benefit from that by not getting into any legal chaos down the line.
4. Taking Businesses Global
If you want to expand your business to some other nation, well, it is merchant banks that can make that happen too. Many of these banks offer specific services regarding just that like connecting with foreign investors, international trade handling, currency exchange, etc.
5. Custom Money Solutions (It Sounds Cliche But One Size Doesn’t Fit All)
Sure enough, not all businesses are the same, like they may be in different sectors, products are different, needs are different, and so on. That’s where the custom solutions from these banks come into play, like, they can make a custom plan just for you.
6. Not Just a One-Time Deal
What does that even mean? Well, the thing is, it is not like they give you a plan and that’s it. Nah, these banks are there to support you and make your business grow in the long run, so it is more like a long-term relationship than just a one-time thing.
7. Helping Businesses Level Up
Another good thing about merchant banking and merchant banks in general is that they help you with mergers and acquisitions. So, if you truly want to grow and expand even more, then you’d have to give this one a thought and sure enough, it is merchant banks that help you out with such things.
Disadvantages Of Merchant Banking
1. Expensive? Oh, You Bet.
Do you think that the services that these merchant banks offer are worth just a few dollars? Nah, man! These are probably some of the most expensive services you’ll opt for as a business owner or high-net-worth individual. Afterall, these merchant banks are there to help you grow and make more money, so sure enough, it’ll cost accordingly too.
2. Big Risks, Big Losses
It is not often the case but still, sometimes, merchant banks love to make bold financial moves thinking that they can help you out make more profits or money, but that sometimes can backfire. So you can’t just fully rely on them for the risk or losses part.
3. Your Money Gets Stuck
See, if you’re someone who’s out there to raise some funds instantly, well, then you might need to skip the merchant banking option. Why exactly? Well, they’re not there to help you out with instant liquidity, that’s just how it is.
4. Too Many Rules & Regulations
It is true that most of the time these merchant banks take care of the legal side of things or the rules and regulation part, but still, there are so many of them that it becomes too confusing for you. This thing can very well slow down processes a bit and can even cost you way too much in the long run, and there isn’t much you can do about it.
5. Not Everyone Gets In
And it is not like everyone can go to a merchant bank and just opt for their services, it just doesn’t work like that. You have to meet certain criteria which are often set by the merchant bank itself. In most cases though, if you’re a startup or a small company/business, just be prepared to not get the attention of most trusted merchant banks out there.
6. Interest Rates? You Don’t Get to Choose.
See, when it comes to the interest rate part, you practically have no choice but to agree with these banks and pay the interest rate. And sure enough, sometimes, when the bank is trusted and is a reputed player already, they charge their clients even more, and once again, you can’t do much about it.
Conclusion
As you just saw, merchant banking can really be a good thing that can make your business grow to sky-high numbers, but there still are some downsides or challenges that you must consider before you just jump right in and go to a merchant bank. You should give it some time and think things through before making a final decision.
