SIC 6159 Miscellaneous Business Credit Institutions

SIC 6159

This industry covers establishments primarily engaged in furnishing intermediate or long-term general and industrial credit, including the finance leasing of automobiles, trucks, and machinery and equipment. Also included in this industry are private establishments primarily engaged in extending agricultural credit. Federal and federally sponsored credit agencies primarily engaged in extending agricultural credit are classified in SIC 6111: Federal and Federally Sponsored Credit Agencies. Establishments primarily engaged in other types of leasing of passenger cars and trucks are classified in various automotive rental and leasing industries.

NAICS CODE(S)

522220

Sales Financing

522293

International Trade Financing

522298

All Other Non-Depository Credit Intermediation

BACKGROUND AND DEVELOPMENT

Modern business is frequently conducted on a credit basis. The need for credit developed as market economies became more complex and included many players: manufacturers, suppliers, distributors, and retailers. Credit facilitates smooth operations.

The decision to extend credit depends upon three factors: character, capacity, and capital. Each factor introduces risk to the transaction. The risk of lending on character is called moral risk. Business risk involves lending on capacity. The risk of lending on capital is called property risk. An ideal business borrower will combine a minimum of each.

Lenders are often not in a position to evaluate a business against these criteria. To verify a credit applicant's creditworthiness, a lender may contact either general or special mercantile agencies to find needed information. General agencies, such as Dun & Bradstreet, collect information on a range of business enterprises nationwide, while special agencies limit their coverage to one or a few business areas and may operate either nationally or locally.

General agencies furnish two types of reports. General reports are leased by subscribers on a quarterly basis and contain capital ratings, which are based on financial statements, and credit ratings, which denote the grade of credit. Special reports are limited to specific businesses or companies and are provided 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 investigations, trade creditor and banking connections, and public and insurance records.

Business transactions, including credit transactions, are regulated by the Uniform Commercial Code (UCC) The UCC is a collection of modernized, codified, and standardized laws that apply to all commercial transactions, except real property. The code is binding in most U.S. jurisdictions and has standardized most commercial law.

Automobile Finance Leasing

As automobile purchases require significant capital investment, most new car purchases are made with the help of automobile financing, typically made by banks and finance companies. Under a lease arrangement, the financier keeps the automobile's title. The customer usually makes monthly payments and has an option to buy the vehicle at the end of the lease period.

Banks also offer floor plan financing to support dealers' leasing programs. Floor plan...