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Small Business: Having Business Credit Options

Jul 22, 2008
Credit-it's probably one of the most important business tools your small business can have. In fact, it's not only important, but essential. You need it to grow your business, take advantage of equipment and supply sales or leasing, expansion, and a thousand other things.

Most of the time, a small business doesn't generate enough capital to supply all its needs. So when opportunities knock, savvy business owners turn to the credit market to take advantage and stay ahead of the competition. But what kinds of credit are available to the small business entrepreneur, and what types are best for his/her needs?

There are many types of credit available to business owners with realistic needs. Some secured, some unsecured. Having multiple credit sources available allows a business to pick and choose which one is the best for any given situation. And since no two businesses are alike, it makes sense that different businesses will benefit from different types of loans.

For many small businesses unsecured lines of credit work well. An unsecured line gives the owner a lot of flexibility. You use only the amount of money you need, and can hold the rest in reserve. This can be a big plus, because since you're only using what you need, your payments are smaller. This helps cash flow, since interest payments are only made on the outstanding balance. No collateral is required. That means no personal property or real estate is pledged against the credit line.

Unsecured lines of credit have interest rates starting around Prime and go up from there depending upon various underwriting requirements instituted by the bank. Some of these requirements are easily obtainable and some are a little more challenging. It's best to be prepared when applying for any type of business loans.

Small business loans are the most common source of small business financing, after credit cards. There are a number of sources of small business loans, and with good credit, they're generally not difficult to get. Some of these loans (SBA, eg.) are secured by the government. Result? Interest rates may be lower than conventional loans. They also can carry long repayment requirements which can be a big help with cash flow.

Straight bank loans (not government backed) can be very challenging to get, especially for a start-up. Unless your business has spotless books, and a solid track record over a period of years, or good financial projections for your start up that are created by a professional adviser, this is probably not a good loan to apply for.

Credit cards are a great source of credit for small businesses. They can be used for everything from gas, to equipment/supply purchases (depending on the amount of your line). Credit cards give you flexibility second to none, require no collateral, and give you an excellent way to track expenses.

One type of credit that generally gets little thought, but can be a significant player in fattening your bottom line, is vendor credit. This type of credit has a number of advantages: It's free, unsecured, readily available, and easy to qualify for. And it can only be used for buying from the vendor's products.

As with personal credit, there are a variety of credit sources and options available to small business entrepreneurs. As with any major decision, it's always best to consider all the options, compare the benefits against the cost, time and effort involved. In some instances you may find that a combination of credit sources may work best for you. In others, just one.

Whichever way you decide to jump, properly used credit can be a huge boost in growing your business, and your bottom line.
About the Author
Pat Gage, The Opportunity Creator is not only a sought after business credit coach but also a national speaker. For more information on any topic discussed, visit Pat Gage's site at www.10stepstomoney.com
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