Offer some advantages that finance companies offer over commercial banks to small business customers

Expert Solution

Commercial banks accepts deposit from public and they also provide finance in terms of Loans and Advances. However Finance companies donot accept deposits from the public but they do provide Loans and Advances. Finance companies may borrow short term and long term debt to finance the Loans and Advances to be made.

Some advantages that finance companies offer over commercial banks to small business customers are as follows:

1. Commercial banks have to abide various rules and regulations which leads to restrictions in offering various products and services. However a finance company does not have such restrictions and therefore they can offer different products and services that are suited to small business customers.

2. Providing loans and advances are a risky affair because the customer may make a default and the loan might become bad. Commercial banks are usually risk averse and they might hesitate to provide loans and advances to small business customers due to the amount of risk involved in such loans. However finance companies would provide loans in this situation as they are willing to serve the credit requirements of such customers. Thus small business customers are benifited.

3. It takes huge amount of expenditure to run a commercial bank whereas expenditure to run a finance company is comparatively low. Therefore they would provide more Loans and Advances as compared to commercial banks as they would have more funds to lend when expenditure is low.

4. Commercial banks are regulated whereas finance companies does not have to comply as they donot accept deposits. Thus it becomes easier for them to grant loans and advances to customers.

5. Finance companies usually have more experience in the type of products and services they are offering as compared to commercial banks. The expertise is due to the fact that these finance companies are usually part of the group of large industrial undertakings whose day to day activites are related to the finance world.

Thus smal business customers would be greatly benifited by the product and services offerings of the finance companies.

jeff jeffy answered 2 years ago

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