Despite the gentle glimpses of an economic rebound, the financial crisis that we are in is still weighing on the commercial credit market. For this reason, a lot of SME owners are still finding it difficult to get the financing they need to grow their companies.
The problem lately is not only from the bank financing but also of financing from vendors, which is sometimes referred to as “credit.” Many vendors do allow their creditworthy customers to pay for goods and services 30, 45, or 60 days after delivery. Trade terms like these are, in effect, short-term, interest-free loans. To qualify, though, your business must have been a customer or show that it’s trustworthy for the vendor to allow you these credit days.
There are a lot of reasons why a small business might be deemed not creditworthy. They run the gamut from slow sales to poor collections to late payments to bad personal credit. That’s right: In the small business realm, creditors look as closely at a business owner’s personal credit history and rating as they do the business’ credit.
Whatever the cause, poor business credit can have a devastating impact on a company’s financials. This is especially true of restaurants, Production and manufacturing companies, which often must pay for r goods and services weeks before they can collect payment from their customers. Without access to trade terms or short-term bank financing, such as a revolving line of credit, they can easily run out of cash and go out of business
Another key indicator of poor credit is the inability to take advantage of what are known as “prompt-pay discounts.” Many vendors offer creditworthy customers a discount of up to 2 percent on the invoice amount if they pay early, usually within 15 days. Depending on your monthly volume of receivables, these discounts can add up to thousands of dollars a year in savings, but only if you have strong business credit.
The process used to determine the creditworthiness of your business is similar to the process used to determine your personal creditworthiness. It usually starts with a business credit report. Like personal credit reports, these are compiled by several different credit reporting agencies.
The primary criterion these agencies apply is the regularity with which a business pays its bills on time.
Finding short-term credit has become a key part of survival and growth for most businesses at the moment. With the banks locking their doors and throwing away the keys business owners now have to look else where for the fast and reliable credit line they need to trade and grow. If your business has incoming sales regularly one of the options open to you is future receivable financing because of how fast and quick the companies come back to you with a yes or no. Its more expensive than banks but they don’t go through the credit rating and other ropes you would have to jump with a traditional lending operator who at the end would say no in this current climate.
In the US alone the growth of short term financing companies has shown that more small businesses are going down this line to get the fast cash they need for their business.
