Merchant Bank

Combining Lending and Business Advisory Services

Merchant banking combines lending and business advisory services
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Merchant Bank Overview: A merchant bank combines both lending and business advisory services for the business clients that it serves. It thus operates as a hybrid between a traditional bank or investment banking firm and a consulting firm.

This business model has largely disappeared among lenders in recent decades. However, venture capital firms typically are close advisors to the management of the companies in which they invest, and frequently have seats on those companies' boards of directors.

Merchant Bank History: According to an article in the 12/24/2009 issue of The New York Times ("A Bank Idea, With Ancient Roots, for Helping Small Businesses"), many leading financial institutions began as merchant banks, including:

Of these, the article notes, only Rothschild and Lazard still offer similar services today. The article profiles a small merchant bank named Next Street that is based in Boston and New York and which is the lone company of its type serving smaller businesses. To illustrate how far-ranging its advisory services can be, the article cites an example of a small company that turned to Next Street for advice regarding a major human resources issue, the hiring of a new CFO.

Merchant Bank Revenue: Merchant banks rely on two principal sources of revenue, interest on the loans they make and fees for their advisory services.

The NYT article cited above indicates that Next Street charges between $5,000 and $25,000 per month for the latter.

See also specialty lenders.