Unsecured Business Credit
In today’s world it goes unsaid that businesses need credit. Most businesses simply cannot survive only with the cash they have in the bank.
They need to borrow from banks, suppliers and others in order to trade efficiently.
A few simple examples of a business using credit are:
- A business makes use of a bank overdraft – e.g. the bank account goes $20,000 overdrawn
- A business obtains a credit card in the business’s name
- A business takes out a fixed term bank loan – e.g. $50,000 loaned over sixty months
- A business buys goods or services from a supplier and agrees to pay for them in 30 days – this is known as net 30 trade credit
There are basically 2 forms of business credit – secured and unsecured.
Wikipedia defines secured credit or a secured loan as follows: “A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally lent to the borrower, for example, foreclosure of a home”
Wikipedia defines unsecured credit as follows: “In finance, unsecured debt refers to any type of debt or general obligation that is not collateralised by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment.”
Banks are the primary lender of unsecured business credit. Bad economic times have pressured banks to limit their lending, but they still do offer unsecured business credit.
Also as previously noted, suppliers are another source of unsecured business credit when goods and services are provided on net 30 terms.
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