Just as blood circulates in the body and keeps us alive, finance too is the lifeline of just about any wholesale business. In a wholesale business, you have to pay to the suppliers before the retailers pay you. To keep the cash conversion cycle running smoothly, wholesalers need large sums to pay to the suppliers for bulk purchases.
If you are going to launch a new wholesale business, the arrangement of credit can be a challenging task. The best source of finance in this case can be your own savings, friends, relatives, and family. Banks and other financial institutions also lend to the businesses but securing credit from such institutions for newbie might be difficult due to the lack of trust and undetermined credit worthiness.
However, if you know the proper procedure of securing a loan and are wise enough to choose the right loan, you can improve your chances of getting a loan approval by the banks. Some things you must look out for before securing a credit for your wholesale business are:
Identify your use of credit
The first thing you must look out for is the use of capital. Do you intend to pay the credit at the end of every month? If you are applying for business credit card, do you intend to use it for balance transfers? If you cannot repay the whole amount at the month end, do you intend to balance it out during the next month? Answering these questions will help you decide on the type of loan according to your use of credit.
Build up your confidence
Proper information and preparation is the key to build your confidence. The banker asks many questions and it has been noticed that confident and well prepared borrowers have 4 times more chances to secure credit as compared to unprepared ones. Show confidently that your investment is low risk proposition and if any risk arises, you have a proper plan to manage it.
Check out credit limit
Identify how much credit you need each month to be able to manage your scale of operation and check out the amount that can be borrowed without paying penalty. Loan exceeding the credit limit results in additional charge that you have to pay which is called over the limit fees. Sometimes banks even charge default rate on the credit taken over the limit. Choose the bank that offers credit limit according to your requirements in order to avoid unnecessary fees.
Check out grace period length
Grace period is the length of time within which you have to settle the credit amount without paying any cost of finance. The more are the days, the better it is for you. The number of grace days is start from the date of billing and comes with a notification from the bank them with a statement like “20 days from the billing days.” Note down how many days your customers take to pay the money and then compare it with the grace days to check your ability to pay to the bank.
Check method of interest calculation
Some banks charge interest on the remaining balance of current month while others charge on the total balance of current and the previous months. Some banks on the other hand, have fixed rate of interest for a certain time while for others, the rate of interest variates with as per the market rate. In any case, it is wise to check out the method of calculation because it largely affects cost of credit
.
Check out additional bank fees
Check out the security requirements and additional fees charged by banks. Additional fees charged by the banks include late payment, over the limit, annual, balance transfer, application and return check fees. Identify which fees are charged under which circumstances. Stay away from the banks which have high hidden charges since it increases your overall cost of credit.