Business credit institutions are financial institutions that provide loans to businesses in exchange for collateral. They have various options to choose from, and each option has its own advantages and disadvantages. If you are planning to start a business, one of the important considerations is how you will acquire funds. This article will discuss the different types of business credit institutions available.
The three categories of finance companies available are (1) commercial paper, (2) sales finance, and (3) non-commercial paper. Commercial paper is loans which are made for the purpose of purchasing real estate, equipment, supplies, and land. Commercial paper businesses are able to receive either secured or unsecured commercial loans. The most popular commercial finance loan companies in North America are Bank of America, Chase Manhattan Bank, Wells Fargo Bank, and Capital One. Sales finance companies may also offer some of the following services: manufacturer direct, trade and export financing, consumer cash advance, vendor credit, small business cash advance, merchant cash advance, and seller financing.
Commercial paper business credit institutions also deal with loans for the purchase and sale of commercial paper. A typical mortgage company will offer commercial paper as a type of finance. Commercial paper is the most widely used form of business finance because it offers a quick method of receiving cash. This method does not require collateral and is therefore ideal for many different types of businesses. Some examples of types of businesses that can use commercial paper financing are: first mortgage companies, home equity loans, mobile home equity companies, small businesses, hotels and motels, retail stores, public utilities, and franchises.
Depository institutions are primarily used by credit card companies, because they can provide credit cards to almost anyone. The depository institution will obtain funding from a bank, which requires the consent of the customer. Commercial finance companies, on the other hand, are not-so-used by credit card companies. Their services are more towards commercial real estate financing. Some examples of depository institutions that provide this type of financing are: commercial mortgage companies, commercial real estate lenders, commercial lenders, post-trade mortgage companies, treasury department loan companies, U.S. banks, wholesale dealers, and foreign direct lenders.
Other forms of consumer financing are not-for-profit organizations such as: student loans, health care financing, automobile loans, and personal loans. These types of loans have their own advantages and disadvantages. Student loans are often issued at very competitive interest rates and are sometimes offered to non-traditional students. Health care financing may be available through state or federal programs; however, not all health care financing is provided through government programs.
On the other hand, wholesale dealers provide low interest merchandise financing. Depository institutions and wholesale dealers also accept deposits from individual consumers, which results in a savings account for the account holder. Most of these accounts are funded by check, which make them very safe, and convenient, to use. Depository institutions and wholesale dealers provide consumer finance companies with the ability to make large-scale purchases, but do not offer loans. However, many of these companies have special finance programs, which are not generally available to other businesses.
Many small business owners are unfamiliar with the term “business credit union,” and might confuse it with business credit cards. A business credit union is . . . . . . a financial institution owned and operated by its members. Unlike commercial banks and consumer finance companies, credit unions are not-for-profit cooperatives. Unlike the larger banking institutions, most credit unions are owned by several members instead of by a single individual. Credit unions have a membership fee, but it is a very nominal charge, compared to the fees charged by commercial banks. Credit unions generally have better loan terms, better borrowing power and better interest rates than most other business credit institutions (though they are not as strong in some markets as credit card companies).
One of the primary reasons to get a business credit card is the ability to create a checking and savings account jointly. This allows business owners to separate their business finances and personal finances, thus improving the cash flow of the business. This type of financing is particularly helpful when a business owner anticipates expanding his business or expects to have high increases in sales over a short period of time. An example of this would be someone who builds a business out of his garage and plans to have employees working there full-time. By utilizing his own credit union, the business owner can assure himself of low interest rates and manageable monthly payments that will not strain his business finances.