Line of Credit vs Term Loan

Line of Credit vs Term Loan

To decide between lines of credit and term loan and their feasibility for a business, let us first look at what both entail.

A line of Credit for a business is similar to a personal credit card system. These can be secured or unsecured loans availed by a business with low-interest rates and closing costs. However, being late on a payment can make your interest rate increase substantially. This isn't the case with other loans, as we will see later.

Term Loan for business allows your business to borrow a huge chunk of money, all at once, and pay it back over a decided period. Term loans are flexible in their repayment as they could be paid back with a fixed rate of interest or a variable rate of interest. The borrower has to start paying back the money immediately at higher interest rates and closing costs than a line of credit.

Term loans work for business loans that are used for long-term investments. For instance, to buy a business term loan is your best option as that sort of money will take a long time to pay back. The term loan is to be used for a specific purpose that you have to define before borrowing the money. Lenders are more confident about giving you loans for purposes that seem like they will increase your revenue and profit. To get new computers – with a life of three years – for a staff of 30, a term loan of three years will be the appropriate choice of loan.

In retrospect, a business line of credit is used to finance ongoing operations' expenses. A line of credit is a cushion of cash of sorts that helps you fall back on money in difficult situations. So, the best time to apply for a business line of credit is before you need it. When your business is going through a good financial time, apply for the loan to get an unsecured line of credit. Business lines of credit are best to finance short-term needs like equipment maintenance, seasonal expenses, etc. For instance, a business line of credit can be used if you have to fulfill an unexpected increase in demand for a particular product or service that you are providing your customers. Use the line of credit to meet the demand and then pay it back as they generate revenue for you.

Make sure not to tie up your business line to a long-term payment. Or else it will hold back your chances on loans for future emergencies, which defies the whole point of the line of credit.

Make sure to use the right kinds of the loan in the right places and case of confusion, use a company that can help you get the perfect type of loans for your business.

Apply for a no credit check business line of credit HERE.

OR take a look at our short term and long term loans.

Becky: Hi! Let's find the best loan option for you