When looking at trade credit vs. bank credit, trade credit is a form of commercial financing where a customer buys goods now and pays the seller later. On the other hand, banks offer credit through a loan or line of credit.
Trade Credit vs. Bank Credit – Key Differences:
- Source of financing. In a trade credit arrangement, a seller extends credit to a buyer. Bank credit is the financing banks provide through a loan or credit line.
- Credit Terms. Repayment terms for trade credit may be a single payment due in 30 to 60 days. However, bank credit tends to be longer term; for example, spanning from 1-10 years.
- Application requirements. Banks look at business credit and financial history before providing financing. Trade credit considers a company’s relationships with its suppliers. It may be easier to get trade credit vs. bank credit.
- Cost. When you borrow money from the bank, you pay interest. Most trading credit arrangements are interest-free unless customers make payments after the due date.