Commercial Credit

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DEFINITION of 'Commercial Credit'

A pre-approved amount of money issued by a bank to a company that can be accessed by the borrowing company at any time to help meet various financial obligations. Commercial credit is commonly used to fund common day-to-day operations and is often paid back once funds become available.

Also commonly referred to as a "commercial line of credit" or "business credit"

BREAKING DOWN 'Commercial Credit'

Commercial credit is often used by companies to help fund new business opportunities or to pay for unexpected charges. For example, imagine that XYZ Manufacturing Inc. has the chance to buy a piece of much needed machinery at a deep discount. Let's assume that the piece of equipment normally costs $250,000, but is being sold for $100,000 on a first-come, first-serve basis. In this example, XYZ Manufacturing could access its commercial credit agreement to get the required funds immediately. The firm would then pay the borrowed amount back at a later date.

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RELATED FAQS
  1. What is the difference between "closed end credit" and a "line of credit?"

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  2. What are typical forms of long-term debt for a public company?

    Public companies fund their operational needs and capital expenditures with equity or debt. Most often, companies choose ... Read Full Answer >>
  3. What is the difference between subordinated debt and senior debt?

    The difference between subordinated debt and senior debt is the priority in which the debt claims are paid by a firm in bankruptcy ... Read Full Answer >>
  4. How would a standby letter of credit be used during an export transaction?

    A standby letter of credit is typically used to provide a bank guarantee of payment for an exporter in the event that an ... Read Full Answer >>
  5. What are some reasons banks deny applications for checking accounts?

    Consumers and businesses use credit to finance major purchases or emergency expenses that exceed regular cash flow. Credit ... Read Full Answer >>
  6. What is the relationship between national interest rates and the amount of revolving ...

    National interest rates and the amount of revolving credit issued have a negative relationship. Interest rates rise due to ... Read Full Answer >>

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