Business Credit Types You Should Know About: A Comprehensive Guide
Published April 5, 2024
By Digital Web Chef Staff
Different Types of Trade Credit
When people start a business, they need money to keep it going and make it bigger. The money they borrow is called credit. Companies can use five types of credit, and each one is different. Some types of credit have special rules for paying the money back; some are more risky than others. To be good at managing money, business owners need to understand all the different types of credit.
Business trade credit has five categories:
1. Vendor Credit (aka Starter Vendors)
Vendor credit occurs when a vendor (a business from which your business buys goods or services) extends payment terms to a customer (you/your business).
When people buy things from a vendor, sometimes the vendor will let them pay later instead of right away. However, they can only do that if they follow the store's and bank's rules. These rules say how many days they have to pay back the money. It could be 15 days, 30 days, 60 days, or 90 days. For example, if they have 30 days to pay, they must pay everything they owe within 30 days.
When purchasing items from a store, you have the option to pay for the total amount immediately or make a partial payment and carry over the remaining balance for later. The latter is known as revolving credit and is offered by some stores.
Vendor credit can only be used at the specific store where you received it. It cannot be used elsewhere like a credit card. Therefore, vendor credit is only valid at the issuing store and is not widely accepted.
2. Retail Credit (aka Walmart, Costco, Office Depot)
Stores give out a special kind of money called retail credit. This money can only be used at the store that gave it to you, usually with a special card. When you apply for this card, the bank will need your Social Security number.
When a company wants to borrow money or get a credit card, they need to have a good record of paying back loans. This is called a business credit report. To have a good business credit report, they need to have at least three times where they borrowed money and paid it back on time.
Sometimes, a personal guarantee may be needed if the borrower is new or has a poor history. The borrower may need to deposit some money to show they will pay back what they owe.
3. Fleet Gas/Maintenance Credit Cards (aka Arco, Wex, Valvoline)
Fleet credit comes from companies that issue credit for purchasing fuel and the repair and maintenance of vehicles. Often, these are gas cards. Even businesses that don't have large fleets of vehicles can still benefit from fleet credit. There may be time in business, credit history, or business revenue requirements. If you cannot meet some or all of those criteria, you may be able to offer a PG instead or secure your credit with a monetary deposit.
Since these cards tend to be ultimately issued by banks, your Social Security number must be on your credit application. This is per Federal law.
Terms can be either net or revolving.
4. Service Credit (aka Auto Repair, Machine Repair)
A service provider issues service credit to pay for their services only. There may be time in business, credit history, or business revenue requirements. If you cannot meet some or all of those criteria, you may be able to offer a PG instead or secure your credit with a monetary deposit.
Since these credit cards tend to be ultimately issued by banks, your Social Security number must be on your credit application. This is per Federal law. Terms can be either net or revolving.
5. Business Credit Cards (aka Chase, Amex, Cap One)
If you're looking to obtain a credit card for your business, you may need to demonstrate that your company has a strong financial history or has generated sufficient revenue. However, if you're unable to do so, you might still be able to secure the card by providing a Personal Guarantee or by depositing funds into a bank account as collateral.
When you apply for a business credit card from a bank, you must give them your Social Security number because it's the law. The credit card usually works like a magical revolving door, where you can borrow money, pay it back, and then borrow more again.
At Digital Web Chef, our mission is to empower entrepreneur professionals. We're experts in creating mobile-responsive, SEO-optimized websites that magnetize your ideal clients. Let us handle your online presence so you can focus on expanding your business and enjoying life with your family. Ready to take the next step? Reach out via email or text at 833-785-2433. We can't wait to partner with you!
By Digital Web Chef Staff
Different Types of Trade Credit
When people start a business, they need money to keep it going and make it bigger. The money they borrow is called credit. Companies can use five types of credit, and each one is different. Some types of credit have special rules for paying the money back; some are more risky than others. To be good at managing money, business owners need to understand all the different types of credit.
Business trade credit has five categories:
1. Vendor Credit (aka Starter Vendors)
Vendor credit occurs when a vendor (a business from which your business buys goods or services) extends payment terms to a customer (you/your business).
When people buy things from a vendor, sometimes the vendor will let them pay later instead of right away. However, they can only do that if they follow the store's and bank's rules. These rules say how many days they have to pay back the money. It could be 15 days, 30 days, 60 days, or 90 days. For example, if they have 30 days to pay, they must pay everything they owe within 30 days.
When purchasing items from a store, you have the option to pay for the total amount immediately or make a partial payment and carry over the remaining balance for later. The latter is known as revolving credit and is offered by some stores.
Vendor credit can only be used at the specific store where you received it. It cannot be used elsewhere like a credit card. Therefore, vendor credit is only valid at the issuing store and is not widely accepted.
2. Retail Credit (aka Walmart, Costco, Office Depot)
Stores give out a special kind of money called retail credit. This money can only be used at the store that gave it to you, usually with a special card. When you apply for this card, the bank will need your Social Security number.
When a company wants to borrow money or get a credit card, they need to have a good record of paying back loans. This is called a business credit report. To have a good business credit report, they need to have at least three times where they borrowed money and paid it back on time.
Sometimes, a personal guarantee may be needed if the borrower is new or has a poor history. The borrower may need to deposit some money to show they will pay back what they owe.
3. Fleet Gas/Maintenance Credit Cards (aka Arco, Wex, Valvoline)
Fleet credit comes from companies that issue credit for purchasing fuel and the repair and maintenance of vehicles. Often, these are gas cards. Even businesses that don't have large fleets of vehicles can still benefit from fleet credit. There may be time in business, credit history, or business revenue requirements. If you cannot meet some or all of those criteria, you may be able to offer a PG instead or secure your credit with a monetary deposit.
Since these cards tend to be ultimately issued by banks, your Social Security number must be on your credit application. This is per Federal law.
Terms can be either net or revolving.
4. Service Credit (aka Auto Repair, Machine Repair)
A service provider issues service credit to pay for their services only. There may be time in business, credit history, or business revenue requirements. If you cannot meet some or all of those criteria, you may be able to offer a PG instead or secure your credit with a monetary deposit.
Since these credit cards tend to be ultimately issued by banks, your Social Security number must be on your credit application. This is per Federal law. Terms can be either net or revolving.
5. Business Credit Cards (aka Chase, Amex, Cap One)
If you're looking to obtain a credit card for your business, you may need to demonstrate that your company has a strong financial history or has generated sufficient revenue. However, if you're unable to do so, you might still be able to secure the card by providing a Personal Guarantee or by depositing funds into a bank account as collateral.
When you apply for a business credit card from a bank, you must give them your Social Security number because it's the law. The credit card usually works like a magical revolving door, where you can borrow money, pay it back, and then borrow more again.
At Digital Web Chef, our mission is to empower entrepreneur professionals. We're experts in creating mobile-responsive, SEO-optimized websites that magnetize your ideal clients. Let us handle your online presence so you can focus on expanding your business and enjoying life with your family. Ready to take the next step? Reach out via email or text at 833-785-2433. We can't wait to partner with you!