Business Credit Explained

Building up business credit is very similar to
obtaining consumer credit. In most cases, a business owner will not have
to make any personal guarantee or provide personal property as collateral when
attempting to secure a loan. Instead, business credit permits a company to
borrow resources by utilizing the company’s assets as a guarantee. In order for
a business to obtain a loan or a credit line, a bank or credit union will
require the company to have been in business for a certain time period, ranging
from a few months to a few years.

A company may choose to apply for one of the various
different types of available loans, or it may simply apply for a line of
business credit. There is extensive paperwork involved in obtaining a
business loan, and an applicant should be prepared to share financial documents
and credit history, as well as develop a repayment plan.

Once a corporation obtains a loan, the credit line
must utilized to make commercial purchases and should not be used for personal
transactions. A business may use its credit line to purchase any items
necessary for the corporation, including office furniture and essential
electronic equipment. Although it is beneficial for corporations that have
established business credit, it does little to assist individuals who are
seeking to start a business.

An individual who wishes to begin a business must obtain
producer credit, or a small business loan, from a bank or credit union. From
renting a work space to purchasing necessary equipment and hiring employees,
beginning a business is a costly process. Therefore, it is essential that a
potential business owner take the proper steps to obtain
producer credit.

When applying for producer credit, the bank will require
an applicant to present a thorough business plan, outlining various aspects of
the business, including marketing efforts and a financial outlook. An
individual who is looking to obtain producer credit may also be required to
promise to name a personal property as collateral, such as his/her car. This
will act as security in the event that the business fails and the borrower cannot
afford to pay his/her debt to the lender. If an applicant has a high credit
score, then he/she
may be eligible for an unsecured loan, in which he/she will not
need to provide personal collateral in order to receive producer credit.