What exactly does an investment banking firm do?
An investment banking firm works with companies to invest money in stocks and bonds for them. They also provide advice about how that company can best invest their money. An investment banking firm is different from a commercial banking firm, largely because of the way they help their clients gain money. While a commercial banking firm will work with the public, accepting deposits and withdrawals, an investment banking firm works on a larger scale. An investment banking firm works primarily with larger businesses and wealthier individuals, using stocks and bonds to help companies generate funds and offering advice about the best investments these companies can make.
Up until 1999, banks in the United States could not work both in commercial banking and investment banking. This has since changed, however, and banks are able to provide many types of services, including both investment and commercial banking services.
An investment consultant, similar to an investment banking firm, provides advice about how an individual or company can best invest their money. While a broker performs transactions for their client - buying and selling stock, for instance - an investment consultant does much more than that. For an investment consultant, the job isn't simply to obey orders and make the trade, but to help the client understand the trade they're making. They advise their clients in how best to use the resources they have, minimizing risks on the market and making as much money as possible. It's the job of the investment consultant to keep their client in the best position to make an informed decision about any investment decisions they make.
This kind of investment is distinctly different from corporate credit. While investment banking deals with finding the best possible way to invest a company's funds, corporate credit is a means of using a company's funds in advance, gaining financial or material resources on short-term credit. These resources are generally used to better the corporation, although some corporations may be able to develop a line of trust with a lender that will allow them to use this credit whenever they like, with a certain deadline (or net term) until they pay the full amount. One example of this might be a corporation that buys raw goods or materials, with a stipulation that they be paid for by a certain date. Some lenders will be willing to offer a discount in exchange for an amount that is paid before a certain date. Investment banking, on the other hand, uses corporate funds to increase revenue, generally with stocks and bonds. While both of these are common aspects of corporate business, corporate credit is a means of funding normal transactions, while investment banking deals with increasing funds from outside sources.
Corporate credit is much like an individual loan in many ways. While taking out corporate credit deals with a loan, either of money or of materials, to a large company, an individual loan is much the same. The largest difference is simply in who receives the loan. In a personal loan, there's usually one person or small party receiving the loan, while corporate credit allows the entire corporation to use these funds.
As with a private or individual loan, corporate credit requires a level of trust. A lender is always taking a risk when they decide to give out a loan, and so that lender will assess the level of risk based on the credit history of the receiver, in this case the corporation. A corporation with a good financial history is much more likely to receive a line of corporate credit than a company notorious for losing funds or refusing to pay back credit on time.
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