What is the difference between a line of credit and a term loan? Both provide your business with the cash you need to grow your business, but they are pretty different.
Line of Credit
A line of credit for a business is similar to a personal credit card system. It is a very flexible financing product where you only pay back what you use plus interest, finance your ongoing operation’s expenses and is essentially a cushion of cash that helps you fall back on money in difficult situations. It can be secured or unsecured depending on whether or not your lender requires you to put up collateral. The best time to apply for a business line of credit is before you need it. Depending on your lender, you may be subject to withdrawal minimums and fees.
A term loan allows your business to borrow a huge chunk of money all at once and pay it back over a decided period. They are flexible in their repayment as they could be paid back with a fixed rate of interest or a variable rate of interest. They are usually used for long term investments that take a long time to pay back.
Which is Best For My Business?
The answer to this question varies on your business needs. Lenders are more confident about giving you term loans for purposes that seem like they will increase your revenue and profit. These purposes can be things like opening a new location or buying more inventory. No matter when you start using the money from your term loan, you will start making payments to the lender immediately on a set schedule. These loans can also come with fees besides interest such as origination fees.
Where can you get a line of credit or term loan?
Both of these financing products are offered by traditional banks and alternative lenders like First Union Lending.
First Union Lending offers numerous financing programs designed with small businesses in mind. Our business loans are fast and flexible, with financing options ranging from $5,000 to 2 million dollars. Call today to learn more about our various financing solutions to help your business grow and become successful.