How are finance companies different?
Finance companies raise funds primarily by issuing debt instruments in the credit markets consisting of commercial paper and bonds, with small percentages raised from bank borrowings and equity. These funds are used principally to finance consumer loans and business loans and, to a lesser extent, real estate loans. The focus here is on the on-balance sheet non-securitized consumer and business loans, which constitute approximately 85% of the finance companies’ aggregate accounts receivable. In recent years, finance companies have securitized various pools of their assets, thus taking them off balance sheet. An examination of the accounts receivable of finance companies reveals that, indeed, collateral-specific knowledge appears to be an important determinant of the kind of lending they do. For example, consumer lending by finance companies is dominated by auto loans and leases, many of which are originated by finance companies that are captive businesses of the large auto makers. Simil
