Blog

Business Credit
News & Events

Business Credit

What is Business credit?

Your business needs to have a bank account for you to get Business Credit. If your company has no banking relationship, it will be very difficult, if not impossible, for the lender to give you any type of financing. When looking at different types of loans and lines of credit available to businesses, most lenders prefer that their clients maintain some sort of financial stability or history with them. 

This means having an established checking account and sufficient savings to cover potential overdrafts or bounced checks. It also helps when applying for other types of loans, such as personal unsecured lines of credit. 

The same thing applies to secured lending, where there are collateral requirements. Your loan company may require a deposit from you before approving your application which could range anywhere between $500-$10,000 depending on what kind of loan product you’re considering.

Why do I need business credit?

There are many reasons why you should apply for Business Credit:

To secure additional funding

If you don’t already have one, you probably want to open up a business checking account because this allows you to access cash quickly and efficiently without paying interest. Banks typically charge high fees for opening accounts – about 1% per month! However, once you establish yourself as a reliable customer, banks tend to cut those rates down by half or more. 

Opening up a business checking account lets you take advantage of these lower rates over time. You’ll find that this extra money adds up fast. 

Lenders like to see how much income your company generates each year. They know that you’ve been running your business successfully long enough to generate steady revenue streams. In addition, they usually look favorably upon companies who pay off their bills on time every month.

If you don’t currently have a business checking account, you might consider getting a line of credit instead. These products offer similar benefits but allow you to borrow up to 100 percent of the value of your inventory. 

For example, if you own a construction company worth $100,000, you would only have to put up 10-20 percent as security against the full amount. 

Lines of credit do come with higher interest rates than standard checking accounts. But overall, they still cost less than traditional borrowing options like revolving credit cards, home equity loans, and installment loans.

Inventory Financing

If you’re buying new machinery or heavy items that aren’t easy to sell through retail channels, you need to make sure you have adequate working capital. Most retailers won’t carry large inventories unless they have good relationships with suppliers. 

That’s where Inventory Finance comes into play. 

An Inventory Financer is essentially a bank specializing in providing financing to businesses that buy raw materials or equipment used in manufacturing processes. 

Once again, it’s important to keep track of all incoming invoices so you can easily submit payment requests. When you receive payments, be sure to record them properly and send copies to your financier along with any supporting documents. 

Various terms are associated with inventory finance agreements, including “floor plan” and “open-end” arrangements. But regardless of which type of arrangement you choose, you’ll always owe back taxes plus interest until the balance owed has been paid in full.

Loans & Leases

Loan officers often encourage companies to get preapproved for larger amounts of debt upfront. While this practice seems counterintuitive since bigger debts mean greater monthly payments, it actually makes sense financially. 

By securing a lump sum of funds today, rather than waiting around for approval on a smaller amount later, you minimize the risk of losing out on future opportunities due to limited liquidity. Plus, you can use the money immediately to purchase assets like land or buildings.

Some lenders will even give you a break just for being approved. So remember, when you’re looking for a Business Loan, ask your lender what incentives they offer. Some lenders offer special discounts for customers who sign contracts early; others offer credits towards closing costs or points bonuses based on your total dollar volume.

The more cash flow you generate, the easier it should be to qualify for a loan. And once you do secure one, try not to let it slip away. You never know when another opportunity may arise!

Click here to read about using a Balance Sheet.

Photo by Lukas Blazek on Unsplash