Sources of funds

If somebody wants to borrow an amount of money, for example to establish his own business, he may use different sources of financing.First of all he may use his own capital which has been acquired in some kind of activity. Then he may address to the relatives or friends and ask them to lend him a certain amount of money for developing a new business. Next way is to borrow funds from third parties such as banks and finance companies.

Commercial banks are financial institutions that exist primarily to lend money to businesses. Banks also may lend to individuals, governments, and other entities, but most of their profits typically come from business loans. Commercial banks make money by charging a higher interest rate on the equipment and other facilities. The banks do most of the business by receiving funds from depositors and lending the funds to those who need. The main financial goal of the banks is to maximize value to the stockholders. It is necessary for any bank to get the “charter” before it can act. Commercial bank charters are issued by federal government or the government of the state where the bank is located. Commercial banks are managed just like other companies. They have stockholders, employees, managers.

Finance companies are nonbank firms that make short-term and medium-term loans to consumers and businesses. They often serve those customers who don't qualify for loans at other financial institutions. Like banks, finance companies operate by taking in money and lend­ing it out to their customers at a higher interest rate. A major difference between fi­nance companies and other financial institutions, however, lies in the source of finance company funds. Banks receive most of their funds from individu­als and businesses that deposit money in accounts at the institutions. Finance com­panies generally get their funds by borrowing from banks, or by selling commercial paper.

There are three main types of finance companies: consumer, commercial, and sales. Here are the characteristics and functions of each type.

Consumer Finance Companies sometimes known as small-loan companies, make small loans to consumers for car purchases, recre­ational vehicles, medical expenses, vacations, and the like. Consumer finance compa­nies often make loans to customers with less than perfect credit. Because the customers are a higher risk, the interest rates charged on loans are usually a little higher to compensate for the greater risk.

Commercial Finance Companies concentrate on providing credit to other business firms. A special type of commercial finance company is called a factor. Factoring is the buying of a business firm's accounts receivable, thus supplying needed funds to the selling firm. Commercial finance companies also make loans to businesses, usually with accounts receivable or inventory pledged as collateral.

Sales Finance Companies. The mission of sales finance companies is to help the sales of some corporation (indeed, many are subsidiaries of the corporation whose sales they are promoting). In the automotive industry, for example, customers are more likely to buy cars from dealers that offer financing on the spot than from deal­ers who have no financing programs.

A finance company generally gives its retail dealers a supply of loan con­tract forms, which the dealers fill out at the time of sale. The contract is immedi­ately sold to the finance company (at a slightly reduced price, of course, to allow for the finance company's profit).

Exercise 7. Read the text once again and find key words in every passage.

Exercise 8. Read every passage once again and express its contents in one sentence.

Exercise 9. Translate the sentences into English. Review grammar in §2, of grammar supplementary:

1. Где можно найти источники финансирования?

2. Тебе следует взять деньги в долг, если ты хочешь основать бизнес.

3. Мы сможем взять деньги взаймы у третьих лиц в следующем году.

4. Банк должен получить патент от правительства, чтобы иметь право действовать.

5. Банку не было разрешено взимать более высокий процент.

6. Он был вынужден обратиться в финансовую компанию для получения ссуды.

7. Финансовая компания должна будет продать коммерческие бумаги в следующем месяце.

8. Они должны были взимать более высокий процент, чтобы снизить риск потерь.

9. Ему следовало бы заполнить типовой контракт в момент покупки.

10. Не могли бы вы рассказать мне о типах финансовых компаний?

Exercise 10. Read the text once again and make the following presentation: “There are many sources of financing the business like …”

Test 4

1. As soon as we _______________ our talks, we will sign this contract.

A finish

B finished

C will finish

2. Accounting ______________ to be the language of finance.

A are considering

B is considered

C is consider

3. Jane ________________ our accounts lately.

A totaled

B has totaled

C totals

4. Will ________________ a lot of work next year?

A there

B be there

C there be

5. This statement of cash flows _____________yesterday by our accountant.

A has been written

B was written

C was wrote