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Types of Business Credit

Updated: May 3, 2023

Business credit is a major component of operating any type of business. It is necessary to help a business grow and enter new markets. There are many types of business credit that any company can take advantage of, depending on its needs and financial strength. The following will discuss the most common types of business credit available today.

A credit card on top of the keyboard.

Business credit cards, lines of credit, and merchant cash advances are all types of business credit. You can use each type to fund expenses or grow your business.

Unsecured business credit cards

Unsecured business credit cards are also known as "unsecured personal" credit cards. This means that you don't need to put down a deposit or collateral in order to get approved for the card.

  • Advantages: Unsecured business credit cards offer many of the same perks as their secured counterparts, including no annual fee and rewards points on purchases or cash back offers. You can also use them to help build your personal credit history if you haven't had one before or if yours is limited; however, with this type of card there's no guarantee that you'll be approved right away--your application will still go through an approval process like any other type of loan would! So don't expect instant gratification if you apply right away!

  • Disadvantages: If anything happens with this kind of loan (like missing payments or being late), it will affect both types equally--but because these loans aren't backed by collateral like secured ones are they may be harder for lenders to recover from losses due too much risk involved with such high monthly interest rates compared against lower rates offered by similar products designed specifically targeted toward businesses instead individuals who want more control over how much money goes out every month without having total control over how much money comes back into their pocket at end-of-year tax season since most people don't realize how much money goes towards taxes each year until April 15th rolls around again next year!

Equipment financing

Equipment financing is a short-term loan that can be used to buy equipment or machinery. It's usually for 6 months to 5 years, but can sometimes go up to 10 years. Equipment financing is often used by small businesses because it can be difficult for them to get traditional bank loans without good credit scores and steady revenue streams.

Equipment financing can be used for new or used equipment purchases, but it's best suited for larger purchases (over $100k). A business may also take out multiple loans at once if they need more than one piece of equipment at once--for example: one loan might cover a forklift while another would pay for an automatic packing machine in the same building as the forklift.

Merchant cash advances

A merchant cash advance is a short-term business loan. It's a form of financing for businesses that sell on credit, and it allows you to borrow against future sales.

A Merchant Cash Advance (MCA) is similar to factoring, but unlike factoring it does not involve selling your accounts receivable upfront. Instead, the MCA provider provides you with an advance on your future credit card sales before they are actually received in full by your business--in exchange for a small fee up front ($10K-$20K).

Trade credit

Trade credit is a type of business credit that's usually extended by suppliers to retailers. For example, if you're a retailer who sells baby clothes, you might purchase the clothing from a manufacturer and then sell those items to customers. The manufacturer will give you an invoice for their products--and this invoice will serve as your proof of payment (invoices are often referred to as "trade accounts receivable").

Since trade accounts receivable are unsecured loans made by suppliers or vendors, they're considered an important source of financing for many businesses.

Lines of credit/revolvers

Lines of credit are a type of loan that allows you to borrow funds as you need them. A line of credit is typically established with a lender, and the amount you can access depends on your credit score and the terms set by your lender.

A revolver is a type of line of credit where the funds are available for use immediately (as opposed to being tied up until they're needed). Revolvers can be used by businesses that experience seasonal fluctuations in cash flow; this makes it easier for them to meet their short-term needs while still maintaining good credit standing overall.

You should get different types of business credit

It's important to have a strong credit history, so you can borrow money more easily and at lower interest rates in the future. The more business credit you establish, the better off your company will be when it comes time to apply for things like bank loans or venture capital funding.

Here are some examples of different types of business credit:

  • Trade lines - These are accounts that businesses maintain with their vendors (e.g., suppliers) or customers (e.g., retailers). They show up on your personal credit report as part of an overall financial picture that lenders use when deciding whether or not to give loans or make investments in businesses they're considering working with.

Business credit is a great way to get capital for your company, and there are many different types of business credit cards available. You should be sure to research all of them before deciding which one is right for you.

Disclosure: For Change Financial only recommends products we would use ourselves. All opinions expressed here are our own. This page may contain affiliate links and we may earn a small commission, at no extra cost to you. Read our full privacy policy on our website.

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