Financial companies are an essential part of the small business ecosystem. Many small businesses depend on this type of funding from banks, institutions, and private money lenders to further their business interests.
Each financial lender will ask for different credentials before approving you for a loan, such as your credit score and debt-to-income ratio. Other lenders will ask for your assets to approve you.
Financial Companies have been growing so much so that they have become America’s second-largest source of business credit, according to Inc.
And, depending on your circumstances, seeking a loan from a Financial Company could be just the type of monetary support you’re looking for to grow your business.
These institutions can help you get a loan fairly quickly. But, before you start reaching out to a one, it’s essential to understand the different types there are, so you can find the one that’s right for you.
Today, we’ll take a look at the different types of financial companies and what they can offer you and your business.
What are financial companies?
Financial companies are non-banking institutions that offer loans, and other types of financing, to the general public. There are financial institutions that provide personal funding, while others offer commercial financing. Some of them might ask for collateral to approve a loan.
These financial companies are not considered banks and nor are they subject to stringent banking regulations that might limit them. Because of this, they may typically charge lower interest rates than other lending institutions.
Some banks can’t offer you what these financial companies can, such as quick loan disbursement or special services. This is the reason why financial companies might be an excellent fit for any small business that is looking to grow and remain competitive.
What do financial companies do?
Now that you understand what a financial company is, the next question is, what do financial companies do, or rather, how do they work and what is their primary function?
To start, finance companies get their money from borrowing money themselves or from a parent corporation. According to Chron, there are many different types of lending that finance companies can provide, including:
- Personal loans: Ideal for people who need a personal loan for a second mortgage, to pay off debt, or for a car loan.
- Asset-based loans: Ideal for rapidly growing businesses who need lending fast, but are low on cash. Assets can include accounts receivable or inventory.
- Factoring: Ideal for a fast-growing manufacturer that may not have the credit but has a lot of interested customers. Collateral would involve the customer selling 80% of the value of their accounts receivable.
- Installment loans: Ideal for merchants that offer payment plans to their customers can get financing from financial companies.
Why do some financial companies ask for collateral?
Financial companies can make sure that they won’t lose any money with collateral.
If financial companies think your assets are valuable, then they will approve a loan for what they feel is appropriate based on that asset. If you do not pay back their loan, then the financial company can seize their assets.
Therefore, carefully consider whether or not you are in a position to offer your asset before choosing to apply for a loan through a finance company that requires collateral.
Types of financial companies
While you may not have heard of the term “finance companies,” you’ve likely heard of the different types of financial companies which are more well-known:
A hedge fund is a finance company in which wealthy investors from around the world invest their money in a business they believe in maximizing their wealth.
Private equity firms
Private equity firms are finance companies that approach cash-rich investors directly, asking them to invest their money in the firm. Then, the firm uses this money to buy stakes in other privately managed companies.
Although finance companies are different than banks (because they do not accept deposits), investment banks—or wealth management companies—are a branch of large financial institutions, such as JPMorgan Chase and Wells Fargo.
These finance companies serve as the middlemen in the execution of significant transactions that involve the exchange of securities or shares, and would likely not be working with smaller businesses.
Commercial finance companies/lenders
According to Upcounsel, commercial finance companies are finance companies that make loans to commercial businesses or help finance the sale of a company’s products to their customers. Again, they are different from banks because they do not collect deposits, and they are therefore not held to the same strict regulations.
These companies fall within the same category as commercial finance companies but may do things a little bit differently.
Camino Financial is one of these types of alternative lenders, as we are an online lender that helps ensure no business is left behind. We want to make sure our loans are accessible to everyone, and unlike most types of financial companies that ask for assets as collateral, we can find other ways to work together.
Finding the finance company that’s right for you
If you’re a small business that’s looking to grow, then traditional finance companies may not be the best option for you, even though they exist to serve businesses when banks and other lending institutions cannot.
Camino Financial as an online lender that offers loans at low monthly rates, even if you don’t have a credit history.
We offer quick, easy, and convenient funding options. We can find a loan that can match your business’s needs. Request a quote for a business loan today and experience how our loan process is different from other lenders!