文档介绍：Chapter 26
On the Web: Finance Companies
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Chaptersses with tailored products (usually not offered by banks).
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Risk in Finance Companies
Default risk is the greatest risk, and finance companies often lend to those who can’t get financing otherwise.
Liquidity risk can be an issue, as their assets (loans) are not easily sold. A need for cash can cause problems.
Copyright © 2009 Pearson Prentice Hall. All rights reserved.
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Risk in Finance Companies
Roll over risk refers to the need to continue to borrow in the commercial paper market. If the market dries up, they may not be able to maintain their loans.
Interest rate risk is also present. Most of their assets are medium-term loans, funded by short-term commercial paper.
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Types of Finance Companies
Figure 1 on the next slide shows the distribution of loans made by the three types of finance companies: business, sales, and consumer.
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Finance Company Loans
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Types of Finance Companies
Business Finance Companies offer loans secured by accounts receivable and other business assets – something banks were reluctant to do prior to the 1940s.
They also factor accounts receivable – giving companies, say, 90% of the book value of A/R in return for the actual payments when received – essentially a secured loan.
Copyright © 2009 Pearson Prentice Hall. All rights reserved.
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Types of Finance Companies
They also specialize in leasing. They often buy the asset and then lease it back to the company (helps in repossession for late payments). This may be a tax advantage if the company needing the asset cannot benefit from the depreciation expense.
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