What Is Commercial Credit?
Commercial credit is 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. Commercial credit can be offered in either a revolving or non-revolving line of credit.
Commercial credit is also commonly referred to as a "commercial line of credit" or "business credit."
Commercial Credit Explained
Commercial credit is a line of credit offered to business that the business can use to pay unexpected expenses, or expecting operating expenses when there is a lack of available cash. Commercial credit is often used by companies to help fund new business opportunities or to pay for unexpected charges.
Example of Commercial Credit
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.