Credit. Types of loans
Credit (from Latin “credo”) means the trust which allows one party to provide resources to another party where that second party does not immediately reimburse the first party resources (thereby generating a debt), but instead becomes obligated to repay or return those resources (or other materials of equal value) at a later date. The resources provided may be financial (e.g., cash loan), or they may consist of goods or services (for example, at consumer crediting). Credit is any form of deferred payment. The loan covers the lender, also known as the lender, to a debtor, also known as the borrower.
The loan does not necessarily mean the transfer of money in debt. The credit concept can be applied in barter economies as well, based on the direct exchange of goods and services. However, in modern societies credit is usually denominated in units of account. Unlike money, credit itself cannot act as a unit of account.
The word “credit” used in commercial trade in the term “trade credit” to refer to the approval for delayed payments for purchased goods. Credit is sometimes not granted to a person who has financial instability or difficulty. Companies often offer loans to their customers under the terms of the contract of sale. Organizations that offer credit to their customers frequently employ a credit managers.
Trade credit is the largest use of capital for most business to business (B2B) sellers in the United States and is an important source of capital for most all businesses. For example, Wal-Mart, the largest retailer in the world, has used trade credit as a larger source of capital than Bank credit; trade credit volume at Wal-Mart at 8 times the capital invested by the shareholders.
A commercial loan is a loan given by one trader to another for purchasing goods and services. Trade credit facilitates the purchase of supplies without immediate payment of the loan. A commercial loan is usually used by commercial organization as a source of short term financing. It is available to those customers who have a strong financial position and good business reputation.
There are many forms of commercial credit. Different industries use different specialized forms. All of them, in General, are a cooperation of enterprises in order to make efficient use of capital for various commercial purposes.