business finance companies

business finance companies

The Role of Business Finance Companies in Supporting Economic Growth

1. Introduction to Business Finance Companies

Once limited to segmenting niche markets, affixing the BFC label is no longer the mark or indicium of a diminutive lender. To the contrary, the BFC sector has now been propelled into the frontier of lending operations. The individual operating corporations are relatively large while the BFC sector as a whole has become a substantial and vibrant market. There are a number of factors that underscore the importance and significance of BFCs as intermediaries responding to the capital and credit needs requirements of the business sector.

The term “business finance companies” (BFCs) can encompass a wide array of institutions engaged in a variety of different financial activities. Although BFC is a term without a single, universally accepted definition, a more precise understanding can be obtained by recognizing the basic characteristics of these specialized financial entities. Typically, BFCs are corporations, optionally capitalized as business development companies (BDCs), that finance the working capital and in some cases the fixed capital investment needs of businesses. They supply funds through a variety of asset-based financing mechanisms and market niche lending channels. Although interest and fee components represent the primary sources of BFC profitability, the activities within this sector can also embrace venture capital and through subsidiary operations provide a number of related financial services.

2. Key Functions and Services Provided by Business Finance Companies

For businesses, business finance companies offer a range of services. These include not only asset-based lending, factoring, line of credit, and term loan packages designed to accommodate the needs of a wide range of businesses. Business financial companies also can provide financial advisory services to a range of growing and lower middle market businesses. Oftentimes, business finance company-sponsored advisory services can help guide growing businesses through acquisition strategies and ultimately prepare such businesses for a sale or other liquidity event in the form of a going public transaction. The array of fee-based, portfolio servicing, and other income derived services offered to business clients of a business financial company is a function of the company’s focus and expertise in providing direct lending and other products and services to such business clients. Business financial companies that can deliver the demonstrated capabilities of being an originator, investor, manager, and liquidity source for their entire suite can be rewarded with greater fee income than business financial companies that are simply traders.

One key function of many business finance companies is direct lending or lending to support an origination function. In this capacity, business finance companies make loans directly to high-quality medium-sized or small businesses, and real estate finance companies make loans directly to commercial real estate properties or real estate owners. Many business finance companies that provide direct lending focus on particular industries to leverage their expertise in monitoring, servicing, or ultimately restructuring loans to such businesses. In many cases, the relationship focus and demonstrated expertise of specialized business financial companies can enable greater availability of credit to deserving borrowers who may not yet be of a size or have a business history that would allow for larger, money-center corporate lenders.

3. Impact of Business Finance Companies on Small and Medium Enterprises (SMEs)

Since their start in the 1950s, business finance companies have benefited companies and elevated growth. These companies do much more than provide funding, supporting start-ups and companies in general, helping to bolster employment, increase inventory purchases, promote exports, nurture R&D initiatives, and usually spur the company’s economic output. Significantly, shareholders who receive financing to start or grow their companies often communicate an exponential expansion of profits and revenue after reaching out for resources. Happily, investors see the efficiency in almost every partnership in which their money is committed. For several of these reasons, and also due to the importance of the job-creating force of small companies in sustaining the current economic recovery, business finance companies are especially well placed.

Small and medium enterprises make up the lion’s share of the world’s private companies, both in terms of the number of businesses and their combined revenue. However, many smaller companies find it hard to tap into the funds galore that are available for established companies due to more stringent demands on lending made by banks. That’s why many would-be marketers are turning to company finance suppliers.

The role of business finance companies in supporting economic growth (continued)

4. Regulatory Framework and Challenges Faced by Business Finance Companies

To a great extent, the key factor behind the growth of the economy is finance. Aids and supports from various quarters can enhance the result of financial assistance. Among them, business finance companies have the capacity to grow and motor the economy by offering better financial support. This could only be possible when the government and regulatory authorities are supportive to the business finance companies. Moreover, deliberate attempt on the part of the business finance companies is necessary to perform their operation within a regulatory framework. When they are carrying their operation, obviously, they are faced with several difficulties and challenges. This chapter is an attempt to deal with such critical issues. Therefore, the regulatory requirements and the challenges faced by the business finance companies in their operations are the subject matter of this chapter.

5. Future Trends and Innovations in Business Finance Companies

The business finance company is well positioned to respond flexibly to additional innovation and change in the market for business capital. Increased business financing activity is expected to accompany an expanding role for business finance companies in the economy. Business finance has proven to be a resilient industry, and future growth in the business finance sector should promote economic growth as targets of this additional business financing deploy funds and create jobs in the United States.

The business finance company has a significant track record of adapting to and prospering in the face of significant change. This ability to respond both to cyclical change as well as to major inflection points and times of significant economic change will be key attributes of the business finance companies that emerge from the current challenging times. Important future trends and innovations we see on the horizon for the business finance company include: – Maturity transformation – Increasing specialization – More extensive use of limited partnership vehicles – Development of improved default planning, particularly for hard collateral transactions