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Business Credit and its Legalities

by Attorney Shakeatha Davis

Working capital is the backbone of any business. However, in times when cash flow is low or unsteady, taking a business credit can ensure that the business has access to a steady flow of working capital. Business credit is usually utilized to meet regular or unexpected short-term expenditures, enhance cash flow, or make new business investments.

A “business credit” or a “line of credit” is a set amount of credit available to a business owner which can be used by the business owner as and when they need it until the credit limit is reached. Business credit is similar to having a credit card. However, business credit is less expensive than credit cards, as business credit interest rates are often substantially lower than credit card interest rates. Since business credit is less expensive than credit cards, it is an excellent choice for short-term financing for a business.

The Legality of Business Credit

Unlike consumer credit, business credit does not have many safeguards under law. Business credit is indirectly recognized under the law by the Equal Credit Opportunity Act.