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.