What is Commercial Credit?
Sometimes referred to as business credit or commercial lending, commercial credit has to do with the ability of a business to obtain goods and services from a supplier. Business credit is extended with the understanding that the business promises to pay the supplier according to the terms and conditions that the buyer agreed to at the time of acquisition.
The range of goods and services that are covered under the concept of business credit extend beyond supplies and similar types of purchases. Commercial credit also has to do with the securing of bank loans. When seeking a bank loan from a qualified lender, there are a number of different factors that go into determining the level of credit that will be extended. Among those factors are the current worth of the holdings in the possession of the applicant, the current ratio of cash assets to outstanding indebtedness, and the worth of assets that could be converted into cash easily or used as collateral for the loan. The credit history of the corporation will also be taken into account. Once the financial profile is complete, the lender will determine the amount of commercial credit that can be extended to the corporation.
Protecting the commercial credit is one of the most important tasks that face modern companies. The ability to obtain financial assistance, or to secure goods and services that will enhance the operation of the company, forms the basis for continued growth in many industries today. Failure to maintain a good financial rating will result in the decrease of the extension of credit, and in some cases can cause a lender to revoke the privilege altogether.
The judicious use of commercial credit ensures that a corporation has resources to call upon when a temporary downturn in sales takes place, or when an opportunity to expand operations in order to take advantage of market changes takes place. Under the right conditions, companies can prosper, increasing their commercial credit rating in the process.
Discuss this Article
Post your comments