Are you in need of some extra funds for your business? It doesn’t matter if your business has been running for years or if you’re planning a new startup, getting some extra cash can mean the difference between your business succeeding or failing.
Whether you need new equipment, vehicles, or there’re some emergency expenses or overhead costs during the offseason that you need to cover, you should consider taking either a term loan from a bank or a business line of credit.
Now, there are some major differences between term loans and business lines of credit, so let’s take a look at both, and you can decide for yourself which one is better for you and your business.
A business term loan needs to be taken from a bank, and it’s basically a lump sum of money that you have access to immediately. You take the money all at once, and then you have to repay your bank over a set period of time – or term.
Your term loans are most often secured, which means that if you don’t repay the loan in time, the bank will take your collaterals. Those can include your equipment, real estate, or other assets.
What’s good about them is that you can usually agree on a fixed rate of interest that will always stay the same, it doesn’t matter if you repay your loan within a year or within 20 years.
It is difficult, however, for startups to get their loans approved because banks look for stable businesses whose financial future is predictable.
Line of Credit
A business line of credit is an easier way of securing some extra cash for startups and existing businesses. They’re somewhat similar to credit cards, where you have access to a specific amount, but don’t start paying the interest until you’ve tapped into the funds.
Business lines of credit can be secured or not, and they’re what you’d call “revolving”. This means that you can take out a smaller amount than you’ve agreed upon, and as soon as you repay it, you again have access to the full amount.
The purpose of this credit is to help finance ongoing expenses. They are very easily renewable and you can withdraw up to the card limit at any time.
Business lines of credit and term loans can greatly help your business, it’s just a matter of deciding which one is more suitable for you.