Business Credit

How to Build Strong Business Credit: Expert Advice from a Top Blogger

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How to Build Strong Business Credit: Expert Advice from a Top Blogger

Business credit is similar to a conventional loan requested by an individual or like credit offered by card or financing. The only difference is that, as the person who acquires the credit is a legal entity; several institutions have different conditions that consider some particularities of each business.

Credit for companies is a source of capital for entrepreneurs who want to start a business, invest, or even pay off debts. Despite the importance of this resource, not all companies can access this alternative.

During the crisis caused by the coronavirus, the release of credit for small businesses has become one of the extraordinary demands of the market. It’s worth remembering that another recurring problem is that many ventures were already in poor financial health before the pandemic.

WHAT IS BUSINESS CREDIT?

Credit is nothing more than a contract that the company makes with a creditor financial institution, such as a bank, to receive a certain amount of money, which needs to be returned within a pre-established period in the agreement and upon payment of fees.

Remember that financial institutions have the right to grant this credit or not, and this happens because each of them has its own rules and specifications for approving this request.

HOW TO CHOOSE AND HIRE BUSINESS CREDIT?

HOW TO CHOOSE AND HIRE BUSINESS CREDIT?

Working capital, equipment purchase, infrastructure improvement, debt payment, renovations, and property acquisition are reasons why some entrepreneurs resort to this resource. It is essential to point out that many of the lines of business credit companies available in the market are exclusive for a particular purpose. In addition to evaluating the purpose, other factors must be taken into account when making a choice: available credit limit, payment period, monetary correction method for installments, the grace period for initiating payment, need to present guarantees and fees – always paying attention to the Total Effective Cost (CET), which includes not only the interest rate proposed on loan but also other fees that may be part of the balance to be paid by the company.

At the time of the request, in addition to the standard CNPJ information, member registration, balance sheet, property deeds, last balance sheet, and other documents must be submitted and evaluated by the creditor’s financial institution. In addition, for contracting certain lines, it is necessary to include a statement on the project’s financial viability for which the loan money will be allocated.

WHAT ARE THE TYPES OF CREDIT FOR BUSINESSES?

When making the request, the company is presented with a series of lines of credit that can be chosen according to its objectives and financial limits. The difference between them is in the payment method of each one.

  • Anticipation of receivables or revenue

The modality used to deal with small short-term needs, in which amounts receivable, also called receivables, are offered as collateral. It is considered a line that requires little bureaucracy for hiring and is even offered by credit card machine operators directly to the customer.

  • Working capital or guaranteed account

This modality is indicated for short-term financial debts such as payroll, suppliers, and other essential expenses. The bank or financial institution already grants a pre-approved limit for a withdrawal, and the difference is seen in the rates and reduced terms.

  •     Overdraft

Overdraft is known for its popularity and easy access. The modality is an immediate withdrawal without having to carry out in-depth analyses or fill out a form. Despite the ease, interest rates here are usually relatively high. Therefore, it is good to learn about the interest-free amounts and days your bank grants.

  •     Secured loan

The type of loan with a guarantee requires the presentation of some asset. As support to cover the cost of the operation in the event of a possible default. Generally, this action is used to fund more expensive projects such as renovations, expansions of new stores, and construction.

  •    

    Financing

The modality is a type of business credit aimed at purchasing goods for the business, such as real estate or vehicles. There are different types of contracts here with different conditions.

  •     Invoice financing

As with the prepayment of receivables. The objective is to receive amounts that have not yet been paid but with a focus on issued bills. The bill is a credit instrument for which the buyer is obliged to pay within the invoice period.

During the pandemic, new lines of credit emerged explicitly for small and micro-enterprises. Sebrae published a collection with more details about each line. See some of the main ones below:

WHEN TO USE CREDIT FOR MY COMPANY?

The fact is that taking out business credit or any type of loan should only be carried out when the company has no other alternative. Before making any decision, it is necessary to understand the current situation, evaluate the company’s future. Define the most significant expenses, and explore the available lines and conditions.

Understand if you need working capital, the advance payment of receivables, or just the overdraft. Loans are exciting so that the company does not go into the red and can expand or finance its daily activities. It all depends on the problems you want to solve and the solutions you need to get now!

HOW DO I GET CREDIT FOR MY COMPANY?


To get credit for your company, you must understand what financial institutions evaluate when making a concession. The first item analyzed is the ability to pay. At this stage, cash flows and projections are evaluated to check whether your client has to honor the financial commitments assumed.

After that, the customer’s credit history is analyzed, considering all registration information, including equity interest in other companies. Next, the financial situation and assets of the client are checked, and guarantees can be requested when offering credit.

Financial Situation

Finally, the financial situation of all companies related to the same customer is considered. This is because the customer can accumulate debts in a specific CNPJ, unlike the one for which he requested credit from his company. These analyzes are essential to provide more security in decision-making, ensuring that the resources will be received later.

Before applying for credit, it is essential to identify your company’s actual needs. Define the purpose for which the resource will be directed, and the amount requested from the creditor institution. The idea is to adapt all these points to a line of credit that matches your goals and. Above all, fits within the financial limits of your business.

Besides all that, you can:

  •     Search and search for financial institutions that fit your needs
  •     Analyze the restricting factors such as the legal situation and guarantees adequate to the requirements of financial institutions
  •         Create a new business plan for the moment your company is going through

Having done all this, just choose the best day and time and apply for credit for your company. Go to the financial institution and provide the manager with the necessary documentation. The requested guarantees, and the business plan, showing the project’s feasibility.

After that, just wait for the financial institution to analyze. The project and return with the release or restriction to the request.

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