Financing is becoming increasingly difficult for small and medium-sized businesses, but there is a great alternative for increasing the liquidity of your company.
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Entrepreneurs can easily find themselves in the situation that they cannot generate sufficient liquidity, for example to make new purchases for their business or to buy goods for production. In this respect, debt financing is very important for entrepreneurs. When it comes to debt financing, you probably automatically think of a loan that a bank lends to the company. But it doesn’t always have to be money that flows – there is also an alternative. An alternative that does not come from a bank and that does not involve any capital: the commercial loan.
The alternative to a bank
Banks now have a wide range of forms of financing for companies, the self-employed and business owners. These forms of financing are exclusively linked to capital, i.e. loans that banks grant to companies. This seems to be the normal way to get debt financing and that companies become liquid to invest new finance in their company. However, the commercial loan offers many businesspeople an opportunity to obtain external financing. Trade credit is often also understood to mean supplier credit.
Trade credit: Neither bank nor capital in play!
There is no bank involved in the trade or supplier loan, nor does capital make up this financing. Only the buyer and the seller are the ones who hold the necessary threads in the hand of a commercial loan. In order to correctly name the commercial loan, it is a kind of deferral of payment. This means that the parties to the buyer and seller negotiate a later payment term for the goods that the seller brings. As a rule, this period is up to six months after delivery of the goods. In plain language, this means that the seller who delivers the goods to the buyer grants the buyer a delay in payment. The delivery of goods will therefore only be paid for at a later date.
Advantages for the buyer
Of course, this has an immense advantage for the buyer: he does not have to go to a bank and ask for outside financing, but can bridge a short-term liquidity bottleneck with his seller. In this respect, there are no costs for taking out financing from a bank and the credit line is not used to finance goods.
The commercial loan does not cost the buyer. It is also often the case that suppliers also give buyers a discount if they do not use the deferral of payment and pay for the delivered goods immediately. For many companies, however, this is not possible because they only produce products that they sell and thus generate liquidity by producing with the goods supplied by the seller.