Cash Flow Is Strong But Still Need Line Of Credit Getting Vendor Credit for Your New Buisness

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Getting Vendor Credit for Your New Buisness

One source of capital that businesses often overlook is vendor credit. Without a strong banking relationship and credit history, dealing with any bank as a small business looking for a traditional loan or a working business line of credit can be very difficult and frustrating.

Most business owners fall into the trap of relying on their personal credit if they have good enough personal credit to finance their business. Most of them overlook a simple and easily accessible option. Companies that want to sell your company’s products and services have a vested interest in your growth. Many offer trade lines (vendor lines of credit) to help their customers finance their purchases. These companies are not “bankers”, they are businessmen. They offer credit terms that give them a competitive advantage in the market.

Many will offer 10-day terms as a courtesy to prevent customers from stopping what they’re doing when the shipment shows up and writing a check. Some offer 30-day terms that allow their customers to stock additional inventory and buy in bulk. If you don’t have established credit, it’s likely that you’ll only be able to arrange 10-day terms for purchases, and only after you’ve established a relationship and paid in advance for a few orders. Once you have a line of credit with a vendor, you can extend the terms over time as you prove your creditworthiness to 30 days, or even longer in some industries.

Vendor Credit is a great tool in many ways:

1) Seller credit helps your cash flow. You can often buy a product on terms, market it, and collect it before you have to pay the seller.

2) Seller credit allows you to create a D and B file and a Paydex score so the next time you visit your bank you will have the established credit they wanted to see.

3) If you pay your sellers 10 days early, you can achieve an 80 Paydex score (required for most loans) with only 5 or 6 sellers in just a few months.

4) Your credit lines with each vendor will increase over time as you build a payment history with them. As your lines of credit with vendors grow over time, so will your credit limits for bank loans and lines of credit.

5) Most sellers allow LLCs or corporations to apply for credit without a personal guarantee from the owner. This leaves your personal credit available for other needs.

Most sellers do not share trade references with Dun and Bradstreet. However, if you join D and B, you can ask them to include your vendor credit references and often they will.

Whenever possible, look for vendors who already report directly to D and B. This will speed up the process of establishing credit for your business.

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