Business Loans vs Business Line of Credit – Which One is Best?

Business loans are pretty straight forward but lines of credit are something a lot of business owners don’t fully understand. They might be the best solution for you, however. There are many factors that you have to consider when seeking out financing. One is the amount of money you need. You also have to consider what you need the funds for. Once you’ve established that, it will be easier to find the best option for you. Let’s take a closer look at how both work and see which one you should pick.

Business Loans

Business loans, or term loans as they’re often called, are when a financial institution gives you a lump sum that has to be paid over a term at a certain interest. Repayment terms are typically from 1 to 5 years.

Business loans are usually the best option if you want to make a big one-off purchase, like expanding to a new location, for instance. You can also use this money to buy equipment or make important repairs.

With business loans, it doesn’t matter when you spend the money. You will have to start paying the loan immediately on a schedule that can be monthly or daily. They also come with various fees, such as packaging fees, origination fees, and even fees for paying earlier. You will also need to show the lender exactly why you need the money, and they will only give it to you if you have the business credentials, credit, and if you can demonstrate that the loan will translate into more profit.

Business Line of Credit

Lines of credit are slightly different. Instead of giving you a lump sum, a line of credit will give you access to a predetermined amount from which you can draw. These work pretty much like a credit card, just a more powerful version.

With a line of credit, you only have to pay back what you use. You also don’t have to let the lender know what you will do with the money, which is a big advantage.

They often call business lines of credit operating loans because they are usually best for people who want to cover operating costs. These can include things such as payroll, repairs, inventory, etc. They can also be used to pay for unexpected payments, like a tax bill, for instance.

Getting a line of credit is not always easy, but it’s easier than with term loans. Many alternative lenders also have lines of credit, and they usually have even less stringent requirements. AdvancePoint Capital offers lines of credits to a wide variety of businesses, and they will look at things beyond your credit score to see if you’re eligible, so don’t be afraid to look at your options.

Which Option Is the Best?

It all depends on what you want to use the funds for. If you need something flexible that will always be there for you and back you in case of an emergency, then a line of credit might be a better option. But, if you only want to make a purchase and you feel like you have strong enough credit, credentials, and plan, then you could consider a loan.

Conclusion

Choosing between a line of credit and a loan depends on your needs and what you can realistically get. Look at both of these, but don’t hesitate to look at other options as well.