FINANCE COMPANIES
Commercial finance companies have in recent years become a favorable option for entrepreneurs seeking small business loans. These institutions generally charge higher interest rates than banks and credit unions, but they also are more likely to approve a loan request. Most loans obtained through finance companies are secured by a specific asset as collateral, and that asset can be seized if the entrepreneur defaults on the loan. Commercial finance companies make small loans against personal assets and provide an option for individuals with poor credit ratings.
Commercial finance companies provide small businesses with loans for inventory and equipment purchases and are a good resource for manufacturing enterprises. Insurance companies often make commercial loans as a way of reinvesting their income. They usually provide payment terms and interest rates comparable to a commercial bank, but require a business to have more assets available as collateral.
In general, finance companies want to see strong assets to back up a loan and will monitor those assets much more carefully. For that reason, they can loan more against the assets. So chances are a small business might get a larger loan from a finance company than from a bank. The commercial finance companies have also grown because they are more flexible in arranging loan repayment schedules than are banks. Whereas, banks typically require a seven-year repayment on term loans and 15-year schedules for loans on commercial property, finance companies may extend payment schedules up to ten years for term loans and up to 25 years for loans on commercial estate.
Finance companies have experienced sustained growth throughout the 1990s. By the end of the decade, finance companies have become the second largest source of business credit, behind banking institutions. Larger commercial finance companies often offer small business owners a variety of lending options from which to choose. These include factoring, working capital loans, equipment financing and leasing, specialized equity investment, collateral-based financing, and cash-flow financing. Some also offer additional services in connection with those loans, such as assistance with collections.
Commercial finance companies, though come in all shapes and sizes, and the breadth of their services often has some bearing on their exact services. In addition to mega players, the commercial finance industry is populated by hundreds of smaller firms. These firms generally make asset-based loans; provide services to small business owners who are unable to secure loans from their banks.
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