Introduction
Running a business can be a challenging task, especially when it comes to managing finances. As a business owner, you need to know how to navigate the world of credit to ensure that you have access to the funds you need to run your business smoothly. In this article, we will discuss deferments, forbearances, and other important credit terms that every business owner should understand.
What is Deferment?
Deferment is an agreement between the borrower and the lender that allows the borrower to postpone their payments for a set period of time. This can be helpful for business owners who are experiencing financial difficulties and need some breathing room to get back on track. However, it's important to note that interest will continue to accrue during the deferment period, which means that the total amount owed will increase.
What is Forbearance?
Forbearance is similar to deferment in that it allows the borrower to temporarily suspend their payments. However, unlike deferment, interest will continue to accrue during the forbearance period. Forbearance is often used in situations where the borrower is experiencing a short-term financial hardship and needs some time to get back on track.
How Do These Options Impact Your Credit Score?
Both deferment and forbearance can have an impact on your credit score. If you miss a payment, your credit score will be negatively impacted. However, if you work with your lender to set up a deferment or forbearance plan, your credit score may not be impacted as severely. It's important to talk to your lender about your options before missing a payment to ensure that you are making the best decision for your business and your credit score.
Other Credit Options for Business Owners
While deferment and forbearance can be helpful options for business owners who are experiencing financial difficulties, they are not the only options available. Other credit options include:
Lines of Credit
A line of credit is a type of loan that allows the borrower to draw funds as needed, up to a set limit. This can be helpful for businesses that need access to funds on a regular basis.
Term Loans
A term loan is a type of loan that is repaid over a set period of time, typically with a fixed interest rate. This can be helpful for businesses that need a large sum of money for a specific purpose, such as purchasing new equipment or expanding their operations.
Business Credit Cards
Business credit cards can be a helpful tool for managing expenses and building credit. However, it's important to use them responsibly and pay off the balance in full each month to avoid accruing interest charges.
Conclusion
Managing credit can be a complex task for business owners, but it's an important part of running a successful business. By understanding deferments, forbearances, and other credit options, business owners can make informed decisions about their finances and ensure that they have access to the funds they need to keep their businesses running smoothly.
Remember, it's always important to talk to your lender about your options and to make sure that you are making the best decision for your business and your credit score.
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