Difference Between Merchant Bank and Private Equity

A merchant bank is a place that engages in financial departments. It is directly related to business loans, fulfill the needs of big enterprises, high net worth individuals, etc.

Private equity is an alternative capital investment. You can buy a specific portion of any company that is not owned publicly or not enlisted in any stock exchange market, either.

Merchant Bank vs Private Equity

The main difference between Merchant bank and Private equity is that merchant banks deal with business capital funds, borrow money, and invest in different sectors to earn profits, whereas Private equity firms are slightly different, having a goal of financing the individual’s money to private equity deals to gain benefit.

Merchant Bank VS Private Equity

Merchant banks offer their services worldwide, and the trading network is spread internationally. They have several services to provide, such as financial consultancy, advisory services, marketing, etc.

Private equities are generally known as a capital investment and are pursued long-term growth. Their way of working is pretty simple and includes three steps only that is – Buy, change, sell.


Comparison Table Between Merchant Bank and Private Equity (in Tabular Form)

Parameter of ComparisonMerchant BankPrivate Equity
FundsMerchant banks deal with wealthier institutions or wealthy individuals. They often raise loans from banks to invest in their project.Private equity firms usually use investors’ funds to invest in the equities to gain profit from them.
ActivityPromote business institutions in their early stage. It is one of the critical roles they play for the organization.Private equity firms, on the other hand, provide financial support to business institutions that require it and help merchandise the company for future capital.
ExpansionTo expand the business, merchant banks usually advises raising the fund by issuing shares, debentures, in international markets.These firms do not support the policy and instead invest their investor’s money for expansion purposes of any business.
ServicesMerchant banks provide their clients with portfolio management advisory services, which means the firm handles all the trading on behalf of the client.Private firms will let the business institutions access to newer markets that were initially closed to them. The bigger market reaches a company has, the more revenue it is like to earn.


What is Merchant Bank?

Merchant banks provide various services to many business organizations, wealthy individuals, etc. They will give the institution consultancy services regarding their growth, trading, and marketing purposes.

The organization will raise funds from the domestic and international markets to invest in the client’s project. They have tons of services to offer that we are about to write down below –

  1. Merchant banks will offer business institutions with consultancy services related to their financial and marketing strategies.
  2. Providing advice on expanding the business on a larger scale for better profit ratio. They will calculate, study on the clients project, and help prepare manage the project properly.
  3. Merchant banks will also act as a middleman or broker for you in the stock market. The organization will do the trading part on behalf of the client. If you want the other way, they will provide you with advice on when and what to buy and sell.
  4. Public sector units get help in raising long-term capital with the help of Merchant banks. Every leading institution takes finance assistance from these organizations.

Merchant banks almost play a similar role as investment banks on a larger scale. This firm includes many different activities to provide to clients, such as – Stock broking, Fundraising, Marketing, helping government public sector units financially, and leasing out their services.

Starting from equity financing to bridge financing, providing credit products is one of the essential aspects of Merchant banks. They mainly focus on international market activities for trading, investing, real estate investment purposes.


What is Private Equity?

Private equity has very different characteristics that set it apart from Merchant banks. Their goal is to grow and develop a company using private equity investments.

These firms are consist of a group of investment funds. Some companies do not get the growth they need and require assistance. Private equity firms step in to help them reach the growth, financial aid, and also provide advice related to management.

There are many useful features and services that private equity firms have to offer. These services are –

  1. The primary and one of the essential functions of private equity firms is to make sure that they earn profit for their investors. They usually aim to buy a smaller company at a lower price rate, increase engagement and growth, and then sell it on a higher value.
  2. Private equity firms provide financial support to different companies in multiple ways. It helps to raise a smaller company to raise capital for better growth.
  3. Private equity firms are full of resources. They will provide their clients with every possible support they might need and use the contacts for the fast-growing of the company.

These firms focus on increasing a company value to gain profit by selling it. They manage the company, increase the growth and makes it more reliable and better managed.

Main Differences Between Merchant Bank and Private Equity

  1. Merchant banks cover both domestic and international market to raise funds, whereas Private equity firms invest their own investor’s money.
  2. Private equities buy a company, increases its value and sell it to gain profit. Merchant banks invest in different aspects of the market for benefit.
  3. Merchant banks issue shares and debentures to gain capital, private equity firms do not.
  4. Merchant banks only deal with wealthy professionals, whereas any individual can invest in private equity.
  5. Merchant banks will offer their clients with various kinds of services. Private equity firms help to grow a new business.



In the end, it can be said very clearly that Merchant bank and Private equity are different. They function on the various market on a different level. The goal of these two firms is different from one another as well as their clients. Both have different characteristics and work according to the needs of the client/company.

One of these will ensure you to provide you with many services, function on behalf of you, trade stocks for you, etc. Another one will grow your business and make it more valuable. Gaining more profit is the only objective of private equity firms, whereas Merchant banks have other goals too.


  1. https://www.nber.org/papers/w19300.pdf
  2. https://archives.tpnsindia.org/index.php/sipn/article/view/1868
  3. https://doc1.bibliothek.li/acb/FLMF040688.pdf
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