Methods of Industry Financing

Finance companies are heavy users of debt in financing their operations. Principal sources of borrowed funds include bank loans, commercial paper, and long-term debentures sold primarily to banks, insurance companies, and non-financial corporations. Which source of funds these companies emphasize most heavily at any given time depends essentially on the structure of interest rate. When long-term rates are high, these companies tend to emphasize commercial paper and shorter-term bank loans as sources of funds. On the other hand, in years when long-term rates are relatively low, usually during a business recession, long-term debt will be drawn upon more heavily