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The total business finance function is composed of three segments: (1) short-term financing, (2) intermediate-term financing, and (3) long-term financing.
Short-term financing deals with the demand for and supply of short-term funds which may either be secured or unsecured.
Sales finance companies are firms specializing in the purchase from retailers of the installment receivables arising out of retail sales of automobiles, house hold appliances, industrial equipment, farm equipment, and other durable goods sold on the installment payment plan. Some sales finance companies operate in the Philippines. Among them are the following:
1.MB Finance – which provides financing for brand-new and used vehicles, working capital, car repairs, expensive appliances, and personal computers.
2.BA Finance Corporation – which provides car loans;
3.BPI Family Bank – which provides financing for the following purposes:
•To buy a brand new or secondhand car
•To refinance existing car loans
•To borrow cash with car or other vehicles as collateral
There are three major types of finance companies. They are the following:
1.Sale finance companies;
2.Business or commercial finance companies ; and
3.Personal finance companies.
Finance companies are those which are engaged in making short and intermediate term installment loans to consumers, factors of finance business receivables, and finance the sale of business and farm equipment. Funds are raised by finance companies, just like any other corporation, by issuing stocks and bonds, borrowing from the banks, and selling their commercial paper.
A commercial paper is a short term promissory note, generally unsecured, which is sold through commercial paper dealers or directly to investors. Commercial papers are issued by finance companies and business firms that borrow funds in the money market.
Factors perform the financial service known as factoring, which consist of the purchase of accounts receivable outright without recourse to the seller for credit losses.
This lends directly to a wide variety of businesses, mainly of small and medium size. Short term loans are granted by this type of finance companies against the security of assigned accounts receivable, inventory, and equipment.
When using accounts receivable as collateral, the loan arrangement may fall under any of the following:
1.Non-notification plan
2.Notification plan
Under the non notification plan, the debtors of the borrowing firm are not aware that their accounts have been pledged as collateral for a loan from finance company. When the debtors are informed, however, the plan falls under notification plan.
The four components perform different functions. The functional differences, however, have been reduced by reforms in the Philippine banking system. Banking activities which have been previously exclusive for a component are now performed by another or all of the other components. A development bank premier development, for instances, also performs a previously commercial banking function of checking accounts.
Suppliers extending credit to a buyer for use in manufacturing, processing, or reselling goods for profits are called trade creditors. Credit extended by trade creditors in short-term, is usually unsecured, and is known as trade credit. Trade credit is also sometimes referred to as commercial credit, mercantile credit, and accounts receivable credit.
Trade credit is a form of credit extended by a firm to another firm
Nature of Trade Credit
Finance companies are engaged principally in personal loans is called personal finance companies. Their loan portfolio however may include miscellaneous business loans and commercial accounts receivables loans.
1.Unsecured loans – also called clean loans, are those which do not require collateral.
Insurance companies provide a stable source of short term funds.
Commercial banks are institutions which individuals or firms may tap as sources of short-term financing. A commercial bank is defined as any corporation which accepts or creates demand deposits subject to withdrawal by check.
Group 2
1.Short-term credits mature more frequently.
2.Short-term debts may, at times, be more costly than long-term debts.
7. company accruals
6. insurance companies
5. factors
4. finance companies
3. commercial paper houses
2. commercial banks
1. trade creditors
Short-term financing is provided by the following:
1.They are easier to obtain.
2.Short-term financing is often less costly.
3.Short-term financing offers flexibility to the borrower.
Originally, the banking system is composed of four highly distinctive components. They are the following:
1.Commercial banks;
2.Development banks;
3.Savings banks; and
4.Rural banks