SIC 6153 Short-Term Business Credit Institutions, Except Agricultural

SIC 6153

This industry includes establishments primarily engaged in extending credit to business enterprises for relatively short periods. Private establishments primarily engaged in extending agricultural credit are classified in SIC 6159: Miscellaneous Business Credit Institutions.

NAICS CODE(S)

522220

Sales Financing

522320

Financial Transactions Processing, Reserve, and Clearing House Activities

522298

All Other Non-Depository Credit Intermediation

INDUSTRY SNAPSHOT

Credit generally refers to a purchase, or the power to make a purchase, of goods for use in the present—with payment deferred to a future date. Granting credit typically depends upon three factors: character of the borrower, capacity to repay, and capital used as collateral. Each of these factors introduces some risk into the transaction. The risk of lending on character is called "moral risk," the risk of lending on capacity is called "business risk," and the risk of lending on capital is called "property risk." An ideal borrower will combine a minimum of each of these three risks.

Lenders are often not in a position to evaluate a business against these criteria as easily as they could with an individual. Consequently, they may contact either general or special mercantile agencies to find needed information. General agencies, such as Dun & Bradstreet, collect information on a wide range of business enterprises nationwide. Special agencies limit their coverage to one or few business areas and may operate nationally or locally.

General agencies furnish general and special reports. General reports are leased by subscribers on a quarterly basis and contain information on capital (based on financial statements), and credit, denoting the grade of credit ratings. Special reports are limited to specific businesses or companies and are obtained under contract. These reports are more extensive than the general reports, and contain background as well as general information. Credit reporting agencies collect their information from several sources, including direct investigation, trade creditor and banking connections, insurance records, and public records. The lenders usually pay an annual fee to these agencies in exchange for an unlimited amount of information.

A large portion of modern business is conducted on a credit basis. The need for credit arose from a complex system of manufacturers, suppliers, distributors, and retailers in the modern market economy. Credit allows the smooth operation of such a system. A cash-only business is virtually impossible in the twenty-first century.

ORGANIZATION AND STRUCTURE

Business transactions, including credit transactions, are regulated by the Uniform Commercial Code (UCC). The UCC is a standardized commercial law effective in most U.S. jurisdictions whose goal is to simplify interactions between businesses. The numerous entities that constitute this category have varying organizations and structures.

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