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Business Credit Terms – What Small Business Owners Should Know

Entrepreneurs in SMEs should understand how important business credit is to them. Having a higher score will increase the chances of getting financial help in the future. But for this to happen, an entrepreneur and the business’s employees should understand some popular terms involved with business credit.

So, whether you are a novice or expert in business, these terms will help you whenever you are handling any matter related to them. Read on to learn more.

Cashflow

Even when one is not interested in improving business credit, understanding cashflow is crucial. This is how finances are coming in and out of the business. An entrepreneur should also understand the sources of the money and also where they are going. This way, it is easy to prioritize the bills, repayment of loans, and other expenditures that promote the credit score.

Business Credit Score

A business is assigned a number that shows its creditworthiness. In other terms, this is the number representing their credit risk. Lenders look at the credit score of a business to determine whether they will extend any financial help or not. Basically, a higher score is better, and this is what lenders are looking for to feel safe while giving you loans.

Business Credit Report

This is where the business credit history is enumerated in detail by the credit bureau of your country. According to numerous publications at https://www.boostcredit101.com/, it is important to keep an eye on your business credit report before making any decisions that will impact the score. Sometimes, there could be errors that need to be rectified to enhance your credit score.

 

Line of Credit

Any open account that is run by the business is called a line of credit. They usually have a limit for use and their repayment is due every month. A business credit card is an integral line of credit for the business. Surprisingly, it carries a lot of weight in determining the credit score of the business. If a business is running more than one line of credit and managing them well, the credit score will go up. The problem is that they can be a recipe for problems when they are misused.

Personal Guarantee

This commitment is issued by the entrepreneur committing themself to take over the repayment of loans if the business fails to do so. Thus, the business’s credit will not be affected when the businessperson takes over. However, both the business and individual’s credit could get dragged down if all avenues of repaying the loans and bills fail. As a businessperson, you should be careful when giving a personal guarantee to a lender.

Collateral

This is an asset that secures a loan. Businesses can use physical items like cars, land, or devices for the company. Others use intangible assets like equity. When collateral is used to secure a loan, the business stands a chance to lose it to the lender when they cannot repay. However, business credit could be spared if their assets are liquidated. As a businessperson, understanding all of these terms is highly recommended because you will need them when applying for financial help.

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Lynne Huysamen

Mommy to a pigeon pair, blogger and online marketer. Lover of chocolate, good books and buckets of coffee.

One Comment

  1. Equipping oneself with meanings of such terminologies like these are integral to decision makings and growth of one’s business. Thank you for sharing this, Lynne. Since no business can flourish without the involvement of credit or loan, so it is always an added advantage to understand the basics attached to credit before taking any decision that may make or mar the growing business. 

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