Check credit or corporate credit is in many ways similar to an account credit or credit card. This really means that companies can continuously borrow money up to a certain amount. The limit on how much money the company can borrow puts the bank, ie the lender. However, there is no requirement that the company then borrow the money. In the same way as with credit, the company can choose not to use the credit at all.
Why should I take a corporate or checking credit?
It is also important to consider why you as a company would like to have a check credit. The main thing is to increase the company’s liquidity. In other words, corporate credit is a way for the company to have more money to move in the short term. It is therefore about more sporadic, short-term loans, when you do not have a fixed amount you know you will need to use. An example of when one can use account credit for companies is if individual companies or the limited company made major investments that created an imbalance in the economy.
What fees does business credit entail?
You have 2 charges with a check credit. The first is a fixed annual fee. You then pay a so-called contract interest on the maximum amount that you have been granted to be able to borrow. Furthermore, an outline interest rate is added. It is, as the name implies, an interest you pay on the amount that the company actually uses the corporate credit.
Benefits of checking credit
The advantage of checking credit is that it basically costs nothing if you as a company do not use it. While there is a fixed cost, as we mentioned earlier, the contract interest rate is still relatively low. If the alternative is to take out a loan that you do not then need, this would probably be considerably more expensive. In addition, it would also have become a completely unnecessary cost.
Disadvantages of checking credit
The disadvantage of checking credit is, as with all loans, the risk of falling into a vicious spiral. Checking credit can lead to the feeling that there is more money in the company than it actually does, thus leading to the company finally living on credit. In summary, it is therefore better for your company to take out a business loan , instead of a corporate credit, if it is to make a large investment or if the company has financial problems. Finally, it should also be added that corporate loans taken due to financial problems should only be used as a solution if it is a one-off phenomenon.
Apply for corporate credit
We also come to the question of where you as a company should apply for corporate credit. Many people turn directly to the bank with which they already have an agreement, and perhaps corporate loans. However, there are advantages to comparing a few different lenders who offer business credit before you decide. On the one hand, they can give you a better negotiating position as you clearly have more choices. In addition, smaller lenders, ie not the big banks, are usually more flexible and adaptable. But of course there are also benefits to using the same bank that the company normally used before. Firstly, they have good insight into the company’s finances before, and secondly, it can of course lead to you getting a discount for choosing to use them for several services.
Check credit for start-up company
As a start-up company, checking credit can be quite expensive. The reason for this is that the credit rating will be relatively low for the company. Thus, companies with high credit ratings receive significantly longer interest rates than start-ups with low credit ratings.
That said, you will probably get a relatively high interest rate to begin with. However, that does not mean that you should settle for that interest forever. If your company gets bigger, and thus higher in credit rating, you have a much better negotiating position. Of course, however, the bank will not seek you out to offer you better interest rates. It requires active work on your part to contact the bank and negotiate a good interest rate that is in line with your credit rating.
Important credit line information for companies
Credit lines to companies are an alternative to corporate loans. It is very similar to a corporate credit and account credit, since you have a maximum amount that you can borrow and you then decide for yourself how much of the credit you want to use. In the same way as with credit cards, you then receive an invoice that you can choose to pay in full, or pay in part. Usually, the credit line is used for small, daily, expenses that the company has. If you should instead buy things that are larger investments, such as office furniture and more, it may be significantly better to take out a business loan.