Is there a smart and expedited way for new vendors to build business credit? There definitely is a way for them to get around that hurdle. This service is called the business tradeline service, a service that they can avail of from one of the many business credit services on the market.
Why Vendors Should Consider Tradeline Services
Creditors calculate their rates on loans by looking at the risks that they are exposed to. When a company wants to secure a loan, the creditor will pull up the firm’s credit record and see how reliable it is when it comes to making monthly payments on their loan’s terms. If a company has an excellent record in settling debts, the creditor will not see that much risk in extending a loan to this particular firm.
On the other hand, vendors who have past records of defaulting on a loan are a big risk to the lending company. To hedge itself, the creditor will still extend a loan to this business entity but will met out higher interest rates to make sure it recoups as much of the loan as possible just in case the company goes under.
Startup companies are basically clean slates. However, from a creditor’s point of view, it is even more of a risk to extend credit to new companies, because they have no way of measuring this firm’s capability to pay off debts. So it either imposes even higher rates on the credit they extend new businesses, or they will refuse to extend a loan altogether.
What predicament does the new vendor get itself into? It cannot get itself a loan because it has no credit record to begin with, but it needs to get a loan to demonstrate its ability to pay off loans. How could it do that when its predicament could result to it being extended no credit or, worse, be forced to pay high interest rates on loans?
That is where tradeline services could come in. The services are called as such because they are designed not to compel a startup vendor to complete payments on a loan. Instead, they are designed solely to help a vendor build business credit and accumulate aged tradelines on their credit record. In exchange, all they have to do is pay monthly interest rates that have been charged on the loan’s principal amount.
This way, a startup can demonstrate its capability to settle its bills on time but without exposing itself to huge risk. After all, there is no need to pay off the principal amount so the value it pays monthly is not going to materially affect its cash flow. After a few months of faithfully paying the monthly rate, it is ready to go out and apply for credit, in the confidence that the tradeline service has given it.
The tradeline service is the smartest way for vendors to build business credit with. There is minimal risk involved here, at least to the startup company.