FINANCE COMPANIES 
OVERVIEW

Finance companies, which supply credit to businesses and consumers, are often categorized as nondepository institutions, along with mortgage bankers and brokers, because they make loans without taking in deposits. They acquire funds to make these loans largely by issuing commercial paper and bonds, and securitizing their loans. As financial intermediaries, finance companies compete with banks, savings institutions and credit unions. In terms of assets, the sector is twice as large as the credit union sector, about the same size as thrifts and one-fifth as large as commercial banks. Accounts receivable — the amount of money that is owed to a business — rather than assets or revenues, determine a company’s standing within the industry.

Finance companies are diverse. Captive finance companies — which are generally affiliated with motor vehicle or appliance manufacturers — finance dealer inventories and consumer purchases of their products, sometimes at below-market rates. Consumer finance companies make loans to consumers who want to finance purchases of large household items, such as furniture; make home improvements; or refinance small debts. Business finance companies offer commercial credit, making loans secured by the assets of the business to wholesalers and manufacturers and purchasing accounts receivable at a discount. Increasingly, finance companies are participating in the real estate market but, according to the Federal Reserve, despite their expansion in this area, they still account for a very small share of the total. They also offer credit cards and engage in motor vehicle, aircraft and equipment leasing.
TOP TEN SPECIALTY LENDER MERGERS AND ACQUISITIONS, 2005 (1)

($ millions)






1Bank of America Corp.BankMBNA Corp.$35,707.5
2Washington Mutual Inc.ThriftProvidian Financial Corp.6,854.8
3Pacific Mutual Holding Co.InsuranceBoullioun Aviation Services Inc.2,650.0
4Nelnet Inc.Specialty lenderAssets of Chela2,409.0
5Morgan StanleyBroker/dealerGoldfish credit card business1,773.1
6HSBC Holdings plcBankMetris Companies Inc.1,542.6
7General Electric Co.Not classifiedInventory finance business1,400.0
8Private equity consortiumNot classifiedGMAC Commercial Holding Corp.1,300.0
9JPMorgan Chase & Co.BankCollegiate Funding Services Inc.683.7
10General Electric CompanyNot classifiedBelk credit card operations500.0

(1) At least one of the companies involved is a U.S.-domiciled company. List does not include terminated deals.
(2) At announcement.

Source: SNL Financial LC.

FINANCE COMPANY EMPLOYMENT, 2002-2006

(000)







Nondepository credit intermediation694.9749.9756.9769.9783.9
     Credit card issuing133.8132.5125.2121.5118.2
     Sales financing109.0107.7107.3107.5109.5
     Other nondepository credit intermediation452.1509.8524.5541.0556.2
          Consumer lending99.0103.4105.4112.5119.7
          Real estate credit277.0330.7341.0349.0354.8
          Miscellaneous nondepository credit intermediation76.275.778.179.581.7

Source: U.S. Department of Labor, Bureau of Labor Statistics.

NONDEPOSITORY CREDIT INTERMEDIATION INDUSTRY, 1997 AND 2002 (1)


 

1997

2002





Nondepository credit intermediation47,556$22,660,75448,660$36,271,640
     Credit card issuing5881,782,6516732,287,469
     Sales financing8,1436,163,0417,0088,961,052
     Other nondepository credit intermediation38,82514,715,06240,97925,023,119

(1) As defined by the U.S. Census Bureau, includes firms primarily engaged in extending credit or lending funds raised by credit market borrowing. The group includes credit card issuing firms, sales financing firms, and establishments that make cash loans or extend credit through credit instruments other than credit cards and sales finance agreements. All data based on the 1997 North American Industrial Classification System (NAICS).
(2) An establishment is a single physical location at which business is conducted, as opposed to a firm or company, which may consist of one or more establishments under common control. Data in this chart may not be comparable to other Census Bureau data shown elsewhere in this chapter.

Note: Latest data available. Based on surveys conducted every five years.

Source: U.S. Department of Commerce, U.S. Census Bureau.