Obtaining credit from suppliers and banks in the form of a credit card is an easy form of short-term finance. It can also be the cheapest form of finance. You are, effectively, using other people’s money to finance your business although no interest or other charges are payable. The terms of such credit can vary widely from a few weeks up to many months and will depend, in many cases, upon the particular type of business that you operate.
It must be stressed, however, that you must not abuse your creditors. As with a bank overdraft, the facility can be just as easily withdrawn as it can be granted. Your creditors can also penalize you if you do not pay them on time. They will be entitled to charge you interest at penal rates.
If you are considering purchasing any form of fixed asset, for example a plant and machinery, you must obtain long term finance. In addition, it is prudent to obtain that finance on repayment terms linked to the likely life of an asset. As an example, if you were purchasing an asset with a working life of, say, three years, it would be prudent to repay the necessary finance over the same term. In most cases the lender will indeed insist upon this. It would be futile them lending you money over ten years for an asset that will only last for three years.
Business credit is also available from a wide variety of sources and indeed on a wide range of terms and conditions. Some are secured on assets of one kind or another and some are available on an unsecured basis. As with all forms of finance, you need to know and understand the exact conditions under which credit is being made available. One thing to look out for is early repayment penalties. Even if you do have the means to repay the credit early it could cost you extra in terms of a fee or penalty interest.