Some years ago cattle-raisers depended upon the small state banks, the national banks, and certain livestock commission houses at the central markets to finance their industry. Because of the inadequacy and want of dependability in these sources of loans, the cattle industry required some specialized institution for its finance. In recent years the need has been supplied by the cattle loan companies. Cattle loans are made on livestock, particularly cattle, to provide funds for developing and finishing the animals for market. The packing houses have had a keen interest in this business, not only as a source of profits from loans but also because the loan companies sustained and developed the industry as a whole and thus kept a steady flow of cattle to the packing plants.
Loan companies are located in all the large livebtock markets, and some have been organized in producing centers. Some of these companies are independent, while others are affiliated with state or national banks located at the stockyards, the relationship being usually that of interlocked directorates or the possession of officers in common. The parent banks' reason for such affiliation is that they are limited in the amount of loans they can make to one client, usually 10 per cent of their capital and surplus, and from the point of view of profits the larger cattle loans are the most desirable. Other advantages of organizing affiliated loan companies are: (1) the loan company does not have to keep a legal reserve; (2) the loan company is not subject to the double liability on stockholders; (3) the bank has a convenient source of commercial paper.
The loan company also enjoys certain advantages from this affiliation: (1) it has an added prestige; (2) it can use the bank's credit department and machinery; (3) it can turn over the small loans to the bank; (4) in dull times it can sell the surplus paper to the bank's correspondents.
Among the officers of the loan company is sometimes found a practical cattleman, who not only passes on the loans but also inspects the collateral offered as security. In some companies inspectors are employed whose duties are to travel over the territory where loans are made and make inspections of the ranches, cattle, and facilities for handling them, at least once during the life of the loan. Other companies use resident inspectors, who are called upon from time to time to make inspections and reports.