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The difference between bank credit and trade credit in America

The difference between bank credit and trade credit in America


Credit is an essential necessity for the American economy, as it prevents funds from remaining idle or frozen, and businessmen can start or expand their business, and that increases capital production, as the origin of the meaning of credit in the economy is the ability to lend, and conventionally it is the obligation of one party to another to lend or City.

 

The difference between bank credit and trade credit in America

We will talk about the difference between bank credit and trade credit in America:

 

Trade credit

It is what merchants practice among themselves, buying and selling, and which the facility obtains from suppliers. It is a form of short-term financing, and it is not based on scientific foundations and previous experiences, such as bills of exchange, where institutions resort to it for the purpose of financing part of its working or current capital (workers’ wages). purchases of raw materials).

 

Bank credit

It is the confidence that the bank attaches to its client in making available a certain amount of money to be used for a specific purpose during a certain period of time, and it is paid on certain conditions in return for an agreed upon material return, and it is granted depending on the personality of the client, and is based on scientific foundations and documented information about lenders through guarantees.

 

The importance of bank credit in America

It increases production by providing the necessary funding for establishing new projects, as well as developing existing ones, which need more funds than the self-resources of these projects.

 

It plays an important role in distributing the financial resources available to the banking system in various sectors.

 

Contributes to facilitating trade exchanges using documentary credits, which are a form of bank credit, as they provide an easy way to pay in foreign trade.

 

The most important differences between bank credit and trade credit in America

 

In terms of cost:

The high cost of commercial credit, in case the discount is not used for bank credit.

 

In terms of ease and convenience:

Obtaining commercial credit is easier than obtaining bank credit, because commercial credit is taken from merchants, and it is with the confidence of the merchant to the person, and the merchant gives a deadline to the borrowing person in the event of non-payment. As for bank credit, requests are submitted to the bank to obtain it, and these are checked Requests and analysis of the customer's financial position and status, just as the bank does not give a deadline to pay the customer who is not able to pay on the date that was given, the bank calculates delay interest for him.

 

In terms of flexibility:

In the case of bank credit, the borrower obtains cash funds that enable him to finance his current operations by purchasing goods, paying the prices of his goods to obtain a cash discount, or paying operating expenses. As for trade credit, it is done in the form of offering goods. The flexibility here is less, but it is achieved. Because the debtor can use his assets, which are the goods, to obtain other loans.

 

In terms of warranty:

Bank credit often requires the borrower to provide guarantees to the bank, while commercial credit often does not require such guarantees.

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