Business credit, when this word comes in our mind we question ourselves what it really means. In the world of finance – business is basically a transaction which takes place between two or more parties, and credit means provision of resources or in a layman’s language it means to lend some one who cannot return at the very instant. It’s a loan. So a Business Credit would simply mean that a party is taking a loan for running its business efficiently and effectively. The reasons to acquire a loan may differ. It may be that you want to buy some new assets for your company. You may want to pay your suppliers early as possible in order to get a discount or you may want to return your loan from your prior lender at a smaller interest rate. The third reason can be that you would like to get more equity in the business i.e. you want to increase your sum of share in the business.
It all may seem very simple. One may ponder “to get a loan oh that’s easy”. But no sir that’s not it. But when some one lets you a loan you also have to give something other than the principal amount i.e. the actual amount plus the extra amount which is known as interest. Other than the interest there are some terms and conditions that the lender will put down. The lender also asks for a guarantee from the borrower. A guarantee is basically an assurance to the lender that the borrower will return the loan and can be of any type for example it can be land, a car etc. The type of loan is also crucial over here, whether the loan is short term or long term. The amount of interest varies depending upon the type, time duration and risk involved.
Getting loan for business is not an easy task. Financial Institutions don’t just hand over the loan to any one. One has to have a clean record of business credit other wise Financial Institutions will be reluctant or may not lend you any credit at all. People who are new in a business should try to get loans from family, friends, private foundations, Angel investors and public offerings. People who have business plans and whose businesses are up and running should head towards the financial institutions for help.
When establishing business credit one has to keep some very important thing in the mind.
One has to look if the amount of interest charged on the loan is adequate enough. Will the borrower be able to pay it back? In case of losses the borrower can lose whatever he has guaranteed against the loan taken. Are the terms and conditions set by the loaner justified and can the borrower acknowledge and fulfill all those conditions or not. The borrower should try his level best that the terms and conditions are in his favor if not all he can try to get at least the majority in his favor.
Some thought provoking ideas for borrowers. First of all write a business plan and feasibility report so that you present your proposal to the lender that it’s up and running and easily attain his attention. Also get advice from a professional about the terms and conditions before entering in to any kind of an agreement. Secondly try to get any references that can provide assurance with respect to your character in case of credit. Last but not the least trust your inner abilities and believe in your self and just do it!!!