Business Credit and It's Advantages

Business Credit and It's Advantages

Business Credit and It's Advantages

What is business credit? Business credit is defined as credit extended by one business (the creditor) to another business (the borrower). When a creditor extends credit to a borrower, the borrower can buy or lease equipment, purchase goods, inventory, or services and defer payment for those purchases over time. Business credit helps the borrower keep more cash on hand for other operations expenses and emergencies. By increasing the solvency of the business, the borrower can hedge against future risk, and maximize the current output of his business.

Business credit is the single largest source of business financing by volume in the United States. However, contrary to popular belief, business credit does not include business loans, or bank lines of credit. Just like personal creditors, business creditors evaluate the creditworthiness of the credit applicant to determine whether to issue business credit. If your company has a business credit profile and a track record of repaying credit obligations, you improve your chances of qualifying for business credit.

But why do you need business credit? Most small business are financed at start up with a combination of personal savings, investment from friends and family, business loans, and personal credit cards. While this financing mix is common, it is not optimal, nor is it enough to support and sustain long term growth. You could bring in investors to become partners in your business, however, it may not be ideal to relinquish part of your business ownership if you wish to maintain complete control in managing your small business. By adding business credit to the financing mix, you can begin to maximize your financing options and minimize your dependence on personal credit and personal finances to grow your business.

It can be frustrating to build a credit profile for your small business on your own. Utilize the tools of an expert in your area to determine the best way to obtain lines of credit for your business. By having a business consultant manage your business credit profile, you may be able to use your time more effectively by managing and expanding your small business operation operations. Remember that obtaining business credit takes time, and it is usually prudent to begin building your business credit profile before you have a need for it.

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