Time loans arise largely through the discount of notes running for thirty, sixty or ninety days. When a manufacturer or dealer sells goods on credit he may take in payment his customers' promissory notes for periods ranging from thirty days to several months. Now, the manufacturer must have funds with which to buy raw materials to replenish his stock and prepare for the next season's output. He therefore takes these customers' notes, after indorsing them, to the bank for discount, thus getting the use of the proceeds at once. His indorsement makes him responsible for the amount of each note if the maker should fail to pay it at maturity. This form of note is known as "double-name" paper and when it represents, as in this case, an actual business transaction it is regarded very highly by commercial banks as a basis for advancing funds.
Changed business methods have made the use of the promissory note as between buyer and seller less common than in former years. Instead of giving a note for his purchase of goods the buyer is charged on the books of the seller and remits at a specified time. Relatively there are not so many "bills receivable," as these notes are called by the banks, and more "accounts receivable." But the seller must have funds with which to renew his stock and meet the current expenses of his business. He therefore offers to the bank his own note for discount, or it may be that he puts his notes in the hands of a note broker for sale. This is known as "single-name" paper and, of course, is not as highly regarded by the banks as double-name paper. If the borrower has good credit, that is, if he has the reputation of being willing and able to meet his obligations, the bank will advance him money on his own note. If, however, the borrower's credit is not strong, the bank may require him to secure the indorsement of some other person or firm of good financial standing, thus making the note double-name paper. This is usually known as "indorsed" or "accommodation" paper. The indorser who thus accommodates a friend or business associate makes himself absolutely liable for the amount of the note even though he may have received no value or consideration in the transaction.
Single-name paper arises, also, from the growing use of trade or cash discounts. Large buyers can generally get better terms by paying cash than by giving their notes. A jobber or a department store may have an opportunity to purchase a large stock of goods from a manufacturer at a reduction of, say, 20 per cent for cash. If he can borrow the sum needed from his bank on his own note for three to six months at a rate of 5 or 6 per cent, with the prospect of reselling the goods within that time, he will realize a handsome profit.