For business owners concerned about having working capital to cover expenses to run, build, or grow their enterprise, it may be confusing to hear the terms “business loan” and “business line of credit”. Some may think that the two are interchangeable, but they greatly differ. Each serves a unique purpose that can be harnessed to push any business to the next level- if used correctly.
Knowing the differences between the two phrases will assist business owners to make the right decision when additional cash flow is required. A business line of credit offers greater flexibility to business owners relative to how the funds may be used and the fact that it is not a loan. Additional differences include:
- Business loans are used only once for a specific purpose whereas a line of credit may be used multiple times.
- Timing is everything: as loans fulfill specific purposes, one does not apply for a business loan until the need arises. Meanwhile, a line of credit is applied for prior to requiring the financing. It is available, for any purpose, when needed.
- Business loans require monthly payments. Unless it is for a loan with flexible terms, the same amount will be charged monthly until repaid. With a line of credit, borrowers only make payments based on the amount of money borrowed.
- Business loans are best for long-term financing; lines of credit are best for resolving short-term cash flow bottlenecks of less than a year.
Is a Business Line of Credit Right for You?
Most urgent business financial requirements call for short-term cash infusions. That is where a Business Line of Credit is the best financing vehicle. The Business Loan is used for long-term financing, which offers terms up to five years, is ideal to underwrite equipment purchases.
These are by no means the only financing options available. National Business Capital can assist your business to obtain the right financing you require. For a confidential business review and sound financial guidance, please contact us. We welcome your call at (888) 888-9124.