An agreement, or contract, lists the repayment terms, such as the number of payments, the payment amount, and how much the credit will cost. Mortgage loans and automobile loans are examples of closed-end credit. This form of credit is used for a specific purpose, for a specific amount, and for a specific period of time. Credit Is Either Closed- or Open-EndĬonsumer credit falls into two broad categories: Still, knowing the perks and perils of consumer credit is valuable to nearly every small business owner. And if you offer credit, you'll want to read up on credit and collections. Of course, personal credit usually can't help you get financing for your business. In fact, personal credit, if used wisely, has its advantages. It works because people, by and large, are honest and responsible. Consumer credit is based on trust in the consumer's ability and willingness to pay bills when due. The flip side of this can also be true: If you are over-burdened with personal debt, your business creditors (who can be expected to ask for your personal guarantee on loans made to your small business) may be less willing to extent credit to your business if they think your personal guarantee to be of little or no value.Īlthough Polonius cautioned, "Neither a borrower nor a lender be," using and providing credit have become a way of life for many individuals in today's economy. If your business gets into trouble by incurring too much debt, this will likely affect the business's profitability, which will in turn likely affect your ability to qualify for personal credit. As a result, your personal and business credit standing and management are also closely related. Consumer credit refers to the use of credit for personal needs by individuals and families as contrasted to credit used for business or agricultural purposes.Īlthough this discussion mainly focuses on credit as it affects your personal finances, as a business owner your personal and business financial situations are closely intertwined.
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Learn how to use, and when to avoid, consumer credit options.Ĭredit, as you already know, is an arrangement to receive cash, goods or services now and pay for them in the future. Or it can reek havoc on your personal finances. Consumer credit can be a small business owner's best friend.
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