The Basics of Business Credit

Thursday, December 1, 2011

The Basics of Business Credit

The term credit must be extremely familiar to you. However, it is an exceedingly common occurrence that you simply take it to mean any means of financial credit, without considering its type. Confused? In simpler terms, credit comes with its own tags. Business credit is one class that is totally different from personal credit. Here is an analysis of what exactly business credit is and the connotation attached to it. 

Image credit: adamgregor / 123RF Stock Photo 

Business credit is the means by which an organization obtains services and products under the condition of paying for the same at a later date. There is no question of personal guarantee but the company assets stand as collateral, against any loan, as opposed to the personal property. The latter feature applies for loans or personal credit.

Scope of Using Business Credit

The scope remains restricted to what the name suggests. The credit of the business category can be used only for business purposes. Of course, any infrastructural purchases, equipments and the like fall under business inputs. The business credit acquired is also used as establishment capital and for fresh investments in the existing business structure.

The advantage of business credit over personal credit remains that there is no personal belongings that comes under the risk of being forgone for the inability to pay up the credit acquired. However, this does not mean that the personal credit standing or the credit worthiness of the business owner does not come into play at all. Background checks are conducted on business owners before a business credit line is extended.

As per the company policies and clauses of certain lenders, non-payment of business credit dues can impede personal property or assets of the owner. Despite the fact that the business credit does not call in for personal collaterals or deposits, the lenders might seize personal valuables or assets as lien. This takes place because of the business owner’s liability for a loan undertaken. 

Summing up

The concluding piece of advice remains that if you are not truly sure about the intricate details of the business credit lines and the like get in touch with a qualified attorney who would help you set out all conditions clearly to avoid problems in the long run. Careful planning and thorough understanding are immensely critical before acquiring any new credit line. Lack of clarity could lead to an intricate trap that may become difficult to handle.

Author: Eliza Lyttle is a regular article contributor for, the popular credit report portal.

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