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Understanding The Reasons For Business To Business Credit

Aug 17, 2007
Businesses flourish due to their ability to peak at the right time and enter the market with the right approach. Enterprises, which expand or enter a new field, need a large amount of capital to back their plans and provide a cushion for effective sailing into the untested waters. Businesses have their eyes on market trends and the growth potential, which may fetch enormous profits if tapped efficiently. Below is a list of various strategies adopted by companies in order to obtain business credit.

1.Loans: Companies acquire loans from financial institutions to boost their chances of repaying the loan amount in easy installments and at a predefined tenure. The financial institutions approve the loans only after close scrutiny of the business plan and they generally cut down the amount expected to smaller amounts after analyzing the business plans. This approach towards the issue isn't always the same for the financial institution as it is with the enterprises.

2.Credit: Credit is another way of obtaining money, but like loans, it also has hurdles to overcome for approval. The credit records, the repayment conditions, and the need to provide a guarantee are a few factors that make businesses look elsewhere for funding.

3.Business to Business Credit: The best possible option to the first two is Business to Business Credit. With this form of credit, corporate houses bail out small businesses in their pursuit for excelling in a particular market segment by providing them with required funds and necessary support. Both parties stand to gain from the arrangement based on the following issues.

The creditor stands to gain not only the interest on the investments made but also finds a footing in the new market segment with minimum risk. The only risk the creditors are exposed to is the forfeiture of a part of their investment, which these business houses are prepared to part with in return for the chance of a lucrative arrangement.

Creditors usually have a major say in the company's strategy because they are substantial shareholders and possess experience. They often effectively project the company and bail it out of troubles, which might plague the new setup.

New ventures stand to gain as they now have a secure source of cash flow.

The initial push gained by associating with a large business house gives momentum to the new company.

Credibility is established in comparatively less time, since an association with an established brand speaks about the faith shown in the team by a large business house.

Repayment options won't be stringent, since surrendering of the shares on the default of the loan amount can be put into the contract.

Acquisition of more credit from outside won't be a problem once the company has a credit relationship to show to the potential creditors.

A Final Thought
Business to Business Credit is the reason for more and more of the Joint Ventures carried out these days. It provides both the parties with a healthy foundation on which to work.
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
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