Term Loans vs. Lines of Credit
Term Loans vs. Lines of Credit

When your business needs funds, what should you do- bridge the gap between cash flow channels or take a business loan? Today, business owners are able to get many funding options for finance. You have the choice to apply for funds from banks, or you can apply to the new generation breed of online money lenders who are eager to provide you with business loans for the expansion and growth of your business. If you check the market today, you will find the number of online lenders has grown in the last 10 years or so.

Make the correct choice for your business needs

Now, with so many available choices available for you online, how can you be so certain that you will make the correct choice for your business?

When it comes to business finance, you need to devote time to yourself to think. You can begin by figuring what kind of loan you need- do you need a line of credit or a term loan? The key objective here is to check what you really need for your business development and growth. Once you have decided what to opt for, the next step is to narrow down the names of money lenders who give you the products that meet your needs. The following are some tips to help you get the business finance you deserve for the development of your business-

Term loans versus lines of business credit

Before going into the comparison between term loans and business lines of credit, you first need to understand the difference between the two-

For beginners, a term loan is a loan you know about. It is a lump sum given to you with the expectation that it will be returned within a certain period. The repayment process can be every month, once every two months, every week or every day. When it comes to the lines of credit, you will find that the loan is a revolving one. It is similar to your credit card. Here you draw credit, and you repay interest on the sum you have used. This means if you have used $5000 from your line of credit that is $10,000 you need to pay interest only on the $5000 you have used. Once the interest is paid, you get access to the $10,000 again. In case, you already have used $5000 and needed funds again; you will always have access to the remaining $5000 when you need it.

The above two definitions are simple however in the niche of online money lending; they are a bit complicated over what they were a few years ago. For instance, there are many small business loans in the market. You can get them from the bank or small business alternate money lenders. Most of them are low in cost. Some of them have low rates of interest that you can pay every month.

Business owners can also get loans for a medium-term for their needs. They are costlier over bank loans however they are cheaper over other options available online. Another popular option is the short-term loan. The term for these loans is generally 3 to 8 months. You can pay them back every month or every week. However, at times, esteemed money lenders in the USA like Liberty Lending says they are quite expensive. The requirements for credit are less, and they have a payment schedule that is frequent and costlier in comparison to the above.

When it comes to business lines of credit, you will find they are not so complicated. However, you must note that a line of credit generally comes from a bank. Such a line of credit from a bank is cost-effective over obtaining a line of credit from online lenders in the market. However, again, the line of credit from online lenders are simple for you to qualify and the application process is very fast. So, you can choose where you wish to begin. Remember when you are looking for such a line of credit, always remember what your business can actually afford and how soon do you need the funds for your business.

Ascertain what is best for your business?

The needs of your business are very important, to ascertain what you need first. In case you need cash, you should opt for a line of credit from an online lender or apply for a short-term loan. Both of them have a fast application process. You can receive funds in just a few days. However, if you are looking for low-cost capital, you should start searching for a small business loan or a bank. There are good sources for low-cost capital. Both small business loans and other loans offered from banks are hard for you to qualify. Make sure that your credit score is in shape before you submit applications for these options.

In case, you are not sure from where to start and how you plan to use these funds, you should have some capital in hand in the event of an emergency. Consider a line of credit where you do not need to pay the interest even if you are not using it.

In case, you have specific investments in mind, opting for a term loan is a wise choice. You can effectively calculate the investment costs before you take the loan. This will help you calculate the returns on investment as well.

Experts in the field of small business loans say that financing your small business can be an expensive affair. However, if you are not sure about these two options, check what the lowest cost for you is. Calculate the math and opt for a line of credit that suits your needs the best. Check loan offers and do not forget to compare. In case, you fail to compare the loan offers, consult a loan specialist who will help you in the field and give you the best advice for your business!