Sunday, August 30, 2009

Different Finance Companies for Different Purposes(3)

Commercial finance companies, as their name implies, focus principally on extending credit to business firms. Most of these companies provide "account receivable financing" or "factoring" services to small or medium-sized manufacturers and wholesalers. with accounts receivable financing, the commercial finance company may extent credit against the borrower‘s receivables in the form of a direct cash loan. Alternatively, a factoring arrangement may be used in which the finance company acquires the borrowing firm‘s credit accounts at an appropriate discount rate to cover the risk of loss. most commercial finance companies today do not confine their credit-granting activities to the financing of receivables but also make loans secured by business inventories, machinery, and other fixed assets. In addition, they offer lease financing for the purchase of capital equipment and rolling stock (such as airplanes and railroad cars) and make short-term unsecured cash loans.
We should not over-dramatize the differences between these three types of finance companies. The larger companies are active in all three areas. In addition, most finance companies today are extremely diversified in their credit-granting activities, offering a wide range of installment and working-capital loans, leasing plans, and long-term credit to support capital investment..

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