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In addition to bank there are other
lending institutions also that advance loans and other
financial services. These lending institutions are given
as under:
1. Savings and Loans Associations
2. Credit Unions
3. Life Insurance Companies
4. Commercial Finance Companies
5. Factor Companies
6. Sales-Finance Companies
7. Consumer Finance Companies
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Savings And Loans Associations
These lending institutions receive deposits in small
amounts which arc ploughed back in advancing loans
to finance the purchases of real estate. The real
estate so bought is mortgaged with the creditor.
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Credit Unions
These lending institutions work on cooperative basis.
They comprise those people who are friendly and well-known
to one another, e.g. the employees of a company. These
employees with the cooperation of the employer lay
foundation of a credit union, and save up their money
with it on monthly basis. The amount is revered from
their monthly salaries. Thus a huge fund is pooled
and advanced a a nominal interest rate. Such loans
are recovered in monthly installments from the salaries
of the debtor employees. Employees use these loans
for purchasing durable consumer goods as TV, refrigerators,
furniture. etc. The interest earned is distributed
to members as profit.
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Life Insurance Companies
These companies receive millions of rupees in the
form of premiums against life insurance policies.
The amount so collected finds its way into various
investments including the purchasing of shares, bonds,
and debentures. Purchasing bonds, debentures, and
other credit instruments is actually advancing loans
to the issuing companies. The life insurance company
also directly advances loans to businessmen and manufacturers.
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Commercial Finance Companies
They deal in money in two ways.
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(a).
Buying Accounts Receivables
(b).
Advancing Direct Loans
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(a). Purchasing Accounts
Receivable
They purchase accounts receivable at a discount outright
in their names. When these receivables fall due they
directly collect money from the debtor at a full price.
Buying accounts receivable benefits all the three
parties. The seller immediately gets cash against
selling accounts receivables, the buyer of the merchandise
(debtor) gets sufficient time to make the payment
and the commercial finance company gets discount as
its income.
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(b). Advancing Direct
Loans
They directly advance loans to various classes of
businessmen including producers, wholesaler, retailers,
importers and exporters, and others. These loans are
used in purchasing machinery, equipment, raw materials
and merchandise. Since the loans are secured the influence
of the commercial finance company increases on the
debtor company. Moreover the rate of interest is twice
as bank loans, reasons being greater risk and administrative
expenditure. Lending
Institutions
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Factor Companies (Lending
Institutions)
The commercial finance company discussed above purchases
receivables at a discount on a condition that if they
are unpaid the seller of the goods will be responsible
and returns the amount received against the sale of
receivables. However, the factor company offers a
greater facility to business firms. read more...
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Sales Finance Companies
(Lending Institutions)
Many businesses sell durable consumer goods like refrigerators,
TVs, cars, and the like on installments. In such transactions,
an agreement between the buyer and seller is drawn.
Sales finance companies deal in buying these contracts.
read more...
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Consumer Finance Company
They make small personal loans. Before advancing they
look into the repaying ability, income, financial
soundness and job security of the applicant. He is
required to deposit a certain amount of money as a
security. The company also accepts other types of
securities. The interest is charged on monthly basis
which is mostly two percent.
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