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The Difference of Private Lending Firm From Banking Institutions

The Australian finance market has three main types of financial institutions, namely: Authorised Deposit-taking Institutions (ADIs), and Non-ADI Financial Institutions, Insurers and Funds Managers. Under ADIs are banks, building societies and credit unions. On the other hand, non-ADI financial institutions are money market corporations (merchant banks), finance companies (including general financiers and pastoral finance companies), and Securitisers. The last type, Insurers and Funds Managers, consist of life insurance companies, general insurance companies, and superannuation and approved deposit funds.

Private Lending Firms

Private lending firms fall under finance companies under Non-ADIs. Their main function is to provide loans to households and small / medium scale businesses and they raise their funds from wholesale markets and from retail investors, using debentures and unsecured notes.

Banking Institutions

Banks or banking institutions are classified under ADIs. Their main function is to provide a wide array of financial services to all sectors of the economy including funds management and insurance services. Foreign banks are also classified under ADIs but their authorisation to conduct business as branches in Australia requires them to only accept deposits from wholesale markets.

Difference in Functions and Operations

While both banks and private lending firms provide certain similar services, their main difference lies in how they operate and raise their funds. See comparative analysis below:

Banking Institutions

  • These firms accept deposits from private individuals and business entities.
  • They deal with customers directly
  • They take part in all activities concerning finance
  • They deal with international and internal customers

Private Lending Firms

  • These firms don’t accept deposits from anyone
  • They deal with banks and the government
  • They are concerned with the loan needs of private individuals and small/medium scale businesses
  • They may be interested with finances of foreign companies for investment purposes

Additionally, private lending firms are business entities that do not accept deposits or handle accounts like traditional banks but they provide specific type of service usually limited to providing loans.

Posted in : Business Loans
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