- 1 What are the characteristics of commercial credits?
- 2 What are the Advantages and Disadvantages of commercial credits?
Today we will talk about, What is the definition and characteristics of commercial credits? Before continuing, we must know that a commercial loan is a extension in the payment of services, which a company offers for its clients. This extension is short-term, which makes it easier for a customer to purchase a product.
Thanks to commercial credit, the owner of a company can obtain merchandise that he needs in his business quickly and, with the benefit of being able to cancel it later. It is used mostly, by medium and small companies, since they are companies that do not have a large capital to get a large merchandise, for which this credit allows them to have it, and then cancel it with part of the profit it generated.
If the agreed amount is not paid in the time it was established, the company that is providing its good or service, can take legal action against the one you don’t cancel, the amount of the commercial credit. Knowing this, we will see the main characteristics of commercial credit, advantages and disadvantages, mentioning and explaining each one of them.
What are the characteristics of commercial credits?
Commercial loans have several characteristics, but we will talk about some of their main ones, such as the possibility of delaying payments, being a short-term financial source, the ease of opting for a commercial loan. So, we will talk about these features.
Possibility of delivering payments later
A clear advantage of commercial credits is that of delay payments without bringing any inconvenience, unless it takes a long time to cancel the credit, where an interest charge for delinquency enters.
Short term loan
This can be useful for not being undercapitalized when wanting to renew inventory. Thanks to this method of short-term financing, you have a boost with respect to what is invested in the company. There are cases where companies use these credits inappropriately, then with their recurring use, they can cause a financial imbalance in the company.
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It is not difficult to acquire a commercial credit
This credit arises from the sale of goods between companies, for which negotiations don’t tend to be complex. Generally, providers analyze their client before giving the credit, with this they have a risk analysis, avoiding a problem later.
What are the Advantages and Disadvantages of commercial credits?
These credits have several advantages since, they are easy to get being accessible for small companies, it has low interest rates giving more financial flexibility, it helps to cover expenses while the merchandise is being sold, etc. But it has its not so good side, and that is It is not recommended for companies that are in debt, since they increase the existing debt being harmful.
Connecting with the previous point, you must be punctual with the payment of these credits, because otherwise an extension of payment may come, but with interest, which, despite not being so high, they will make it difficult to make the final payment. And that was to mention some advantages and disadvantages, now we will explain and mention the advantages and disadvantages of commercial credits.
Advantages of commercial credits
There are several points in favor of commercial credits, making us consider them in a business strategy. In addition, commercial credits are one of the best ways to get money for small businesses.
- Streamlines meeting capital needs in the short term.
- They have really low interest rates, this thanks to the fact that they are not high risk.
- Help for unexpected expenses and events where a large sum of capital is required immediately.
Disadvantages of commercial credits
Although these types of credits help us, they have their negative aspects like everything else. So we will see a couple of them.
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- If we wrongly choose our lender, the interest rates can be high. To avoid this, we must choose well who to apply for this type of loan.
- It is not the most recommended for financially vulnerable companies, this because it only it will increase a debt that cannot be canceled.
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