How Small Businesses Benefit From Commercial Credit

How Small Businesses Benefit From Commercial Credit

Businesses, whether big or small, need financing to grow. Without sufficient funds, companies cannot cope with the rising demands on their cash flow, which could lead to closure.  

Small businesses can take advantage of various financing options to improve their cash flow and finance their growth. Commercial credit is one such option. 

What Is Commercial Credit?

Commercial credit, also known as business credit, refers to financing that companies can access based on their credit history, independent of the people who own or run them. Whether you own your business as an individual or a partnership, establishing commercial credit for the business rather than using individual credit profiles can offer many benefits.   

This can mean simple steps such as registering a separate credit card for your business and using it to manage day-to-day tasks like obtaining inventory and buying supplies. Lenders rely on business credit history to make lending decisions when issuing commercial credit. 

How Can Your Small Business Benefit From Commercial Credit?

If you’re a small business owner, here are five ways your company can benefit from commercial credit: 

  1. Affordable Interest Rates 

Although interest rates may vary from one lender to the other, commercial credit allows small businesses to access credit at comparatively lower rates. Often, lenders rely on business credit history to determine interest rates. Small businesses with high credit scores can access loans at significantly lower interest rates than those with low credit scores.  

Paying vendor invoices, utilities, landlords, and business credit card bills on time can boost your credit history further. You may consider replacing your business credit card with a vendor credit and paying your invoices every 30 days. 

Timely payment of vendor credit each month can boost your credit limits and give you longer repayment terms in the long run. You may check out to learn more about vendor credit.

Most importantly, check your business credit reports regularly. Discrepancies, mistakes, and fraudulent activities can affect your credit history and derail any efforts you make to build it. Make it a practice to check your business credit report for errors or fraud that can impact your credit history negatively and report them as soon as they occur.

  1. Focus on Business Credit History 
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Some small business owners struggle with poor credit histories despite running their companies for years. Their negative personal credit histories quickly get in the way whenever they want to access credit for the business. 

By separating business credit histories from the personal credit of owners or managers, commercial credit can offer a lifeline to small businesses whose owners or managers may not be eligible for financing due to poor credit history. 

If you or the person running your business has a poor personal credit history, consider boosting your company’s credit history by taking out credit builder loans such as those listed on Digital Honey. This type of loan can be beneficial for building credit scores. 

  1. Collateral-Free Credit

Access to credit without collateral is among the key benefits commercial credit offers small businesses. Most startups experience the challenge of getting the assets that banks require, such as real estate and equipment, to determine lending viability. 

Since commercial credit relies on business credit history, it provides a feasible alternative to new businesses that find themselves in such situations.  

  1. Wide Range Of Financing Options  

The other way small businesses benefit from commercial credit is through the wide range of available financing options. These include the following: 

  • Invoice Financing: This refers to a credit facility that allows small businesses to access capital that may be locked in unpaid or late invoices. With this form of funding, companies can borrow against their sales receivables.  
  • Bridge Loan: Also known as bridging loan or bridge financing, this refers to a short-term loan that small businesses can take out to fill funding shortfalls and keep things going. 
  • Asset Financing: Companies that have assets can leverage asset financing to unlock capital. It allows such businesses to borrow money against an asset they own.  
  • Sale-Leaseback Financing: Small businesses that prefer not to borrow against assets can opt for the sale-leaseback financing option. Under this type of financing, a company sells the asset to a commercial lender and pays a monthly fee to get regular access. This option is ideal for businesses with high-value assets but short life spans. The beauty of this financing option is that you get the cash and the asset necessary for your business operation.

Evaluate these funding options carefully to choose the best one for your small enterprise.

  1. Quick Access to Credit  

Quick access to credit is the other benefit small businesses derive from commercial credit. Compared to other forms of financing, the process of borrowing from commercial lenders is less complicated and bureaucratic. Some lenders approve loan applications within a day, a far lower timeframe than any bank would offer.  

Loan application processes are also more convenient. Most lenders allow borrowers to submit online loan applications with document attachments. Application reviews and conversions on loan terms may be finalized within the same time, and the loan disbursed to borrowers.  

Final Thoughts 

Small businesses can leverage business credit history to access commercial credit. This type of credit is issued based on the business’s credit history, not that of its owners or managers. 

Whether you own your business solely or jointly with others, building credit history will allow you to enjoy the five benefits discussed above.