Finance companies

Finance companies make loans to individuals as well as corporations by providing consumer lending business lending also mortgage financing. A few of their loans are similar to those provided by commercial banks. But finance companies are different from commercial banks because they don't accept deposits. They increase funds by selling commercial paper a short-term debt instrument and by issuing stocks and bonds. Furthermore finance companies frequently lend to customers perceived as too risky by commercial banks.

There are three most important types of finance companies:

• Sales finance institutions that facilitate to make loans to customers of a particular retailer or manufacturer Example Ford Motor Credit.
• Personal credit institutions that facilitate to make loans to consumers perceived as too risky by commercial banks Example Household Finance Corp.
• Business credit institutions that offer financing to companies particularly through equipment leasing and factoring that is the purchase by the finance company of accounts receivable from corporate customers.