Types of Credit
The following brief definitions and descriptions of the five major types of credit should be useful in showing the role of merchandise credit in relation to other types.
Trade Credit
Trade (or merchandise) credit is the credit granted by a supplier to wholesalers, manufacturers, and retailers in connection with sales of merchandise. It does not include credit granted by retailers to the ultimate consumer.
Bank Credit
Bank credit is credit extended by a bank or other financial institution to a business for the purpose of financing its temporary or extraordinary needs. These loans are normally of fairly short duration. A business uses these loans to supplement its own working capital funds.
Investment Credit
Investment credit is long term credit which provides the means for the purchase of land, buildings, equipment, and other assets of a fixed nature, but not necessarily confined to such uses. It is furnished by Trading Banks, Development Banks, and other financial institutions. These loans are often secured by mortgages on fixed assets or by liens on other assets. They are generally for a fixed number of years, and are repayable in installments.
Personal Credit
Personal credit or consumer credit is the credit a retailer, bank, or finance company extends to an individual in connection with the sale of goods or borrowing of funds. The types that are most familiar are department store charge accounts, installment sales of durable goods, and credit cards.
Public Credit
Public credit is the credit that can be obtained by the various governmental agencies for carrying out the function of government. The Government or its agency is the borrower.