Deciding on a Business Credit Line or Loan: What You Need to Know

Once you are ready to take your business to the next level by obtaining high level financing, the next step is to decide which type of funding is the best option for you.  Two of the most common types of small business credit are lines of credit and loans.

Loans Versus Lines of Credit

Usage

Most loans are obtained with a specific purpose in mind and for a specific amount.  They are a one-time endeavor, or if repeated, require a full reapplication process that does not guarantee approval.  The full amount is given to you at the beginning, whether you use it or not.

Lines of credit give constant access to a certain amount of money, according to what your business qualifies for.  This money is for whatever working capital needs you have and, as long as you maintain your payments, will be yours to use (or not) as you need each month.

Payments

Business loans typically work out a specific payment plan at the beginning, breaking up the amount you owe into fixed amounts over a certain number of months.

Only a small percentage of the total amount is owed each month with a line of credit; there is no set repayment plan, and you only pay if you do have a balance.

Rate

As a long term financing option, loans come with a fixed interest rate, the amount of which is often included in monthly payments since the rate of repayment is set to a few years or more. Closing costs of these loans can be high, adding 3-7% for each loan.

Considered short term financing at a few weeks or months, lines of credit have less to do with annual percentage rates.  Since you will want to keep the access to these funds open, you won’t encounter closing costs.

Choosing Financing for You

A line of credit might be best for your business if:

• You need financing for more than one purpose
• You need to cover short term cash gaps
• You would prefer smaller or varying monthly payments

A loan might be your best option if:

• You need to finance one large purchase
• You would prefer to pay a fixed amount over a long period of time
• You want a set interest rate that you can be sure of

Of course every business’ situation is a little bit different, so to be sure that you are making the best choice; consult with the expert financiers of Advance Funds Network.  Our mission has always been to empower small businesses by providing financing to fit their needs.  Approving qualified businesses for funding within minutes, we can provide fast cash with the flexibility that you need to make the right moves to grow your business.  With business lines of credit or small business loans, we are confident that we can become successful partners, so contact us today!