As a business owner you need to know and understand business credit terms. Just like any other type of loan the terms are important. Knowing them may help you with negotiations with your lenders for the best possible terms on your business loan. If you have a good understanding of business credit terms you are in some sense a credit risk to the lender, as they have an obligation to protect their interest.
Knowing your business credit terms can save you money and time. By understanding them you will know what to ask for and what you may not be able to get. Knowing the business credit terms can help you decide if you need a business line of credit or not. The best way to learn the business credit terms is by getting the free annual Small Business booklet available from the SBA (Small Business Administration). These books are very in depth and cover every topic there is to cover from accounting to loan writing.
It is important to understand what is meant by business credit risk and what these terms mean. To understand business credit terms you need to know what is risk. Risk is how much you are willing to pay for something based upon the facts of that item. So, if you are willing to pay X amount for a yacht boat of a certain style you are considered a high risk customer and will be rated lower than someone who may not be as risk adverse. Someone who is willing to pay Y amount for a new business software program may be a low risk client, but if they don't have the money for the software they will be rated lower still.
When it comes to business credit ratings and terms you need to know the rating for that credit risk. The ratings give a numerical value to a credit risk. The higher the rating the better the customer is for paying back his obligations. That is why creditors are so anxious to extend credit to potential customers.
It is a very good idea for anyone opening a business to get their credit rating and to improve it when they are in business. There are many different aspects of your business rating which affects your ability to borrow money. One thing that affects your credit rating is how well you keep up your payments. This is especially true if you are in a business that earns their money in some way.
Another aspect of business credit terms is the length of time you have been in business. If you have been in business less than three years, you will most likely be a lower risk client than someone who has been in business a while longer. This is due to the fact that businesses grow at different rates. If you haven't earned much income yet then you are considered a young upstart business and . . . . . . lenders will view you more favorably if you show them that you are actively expanding your business.
These terms and conditions change over time depending on the actual lender. They will consider the status of your business, your financial situation and what you are paying each month. The longer you have been in business and the less debt you have the better your credit rating will be. Lenders like to see that you have paid off any debts you have and that your monthly payments are consistent so that they don't end up being a high risk.
You have the right to negotiate your business credit terms with your lender. You can use this opportunity to ask for a better rate or to extend the terms of your loan. Of course, you will have to give them evidence that you will be able to pay off your business loans on time each month. They may feel willing to do this if they believe you have a very good chance of succeeding in your business endeavor.