Applying for Business Credit?

3/7/2006

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Are you in need of money to start, develop or expand your business? Before initiating efforts to secure credit, the Better Business Bureau advises you to consider the type of credit that will best suit your needs and to select a reputable lender.

The types of loans available to assist businesses in search of capital include:

  • Short-term loans, which generally have a maturity of up to one year. They are typically repaid in a lump sum when inventory or accounts receivable are converted into cash.

  • Intermediate-term loans, with maturity dates that range from one to three years.

  • Long-term loans, which have maturities from three to seven years, are based in part on the life of the asset that is financed, and used for major business expenses. Repayment is made in monthly or quarterly installments.

  • A line of credit, which permits you to borrow money as you need it, up to your credit limit. This type of credit can be customized to fit the needs of your business.

You will want to discuss available credit products with a reputable lender. Perhaps the most common source of funding is banks and credit unions. They typically offer a variety of credit programs to build your business, including business credit cards, lines of credit, term loans, owner-occupied business mortgages and SBA-guaranteed business loans. Savings and loan associations, insurance companies, finance companies and mortgage companies are additional sources for credit.

Potential government financing sources include regional or state economic development offices, as well as the U.S. Small Business Administration (SBA). The SBA Web site at www.sba.gov has in-depth information on SBA-guaranteed business loans, lines of credit, equipment financing and more.

The one thing you do not want to do is succumb to a financing deal that sounds "too good to be true." BBBs frequently hear from business owners who have lost money to fraudulent "lenders." Do not respond to advance fee loan promotions that ask for money up front and "guarantee" loans to people with bad credit records. Resist the urge to apply for "free grant" money from advertisers who falsely claim that anyone can get an interest-free cash grant. Always check with the BBB for a report on a financial institution or lender before deciding who deserves your business.

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