The line of credit you receive will either be a secured or unsecured loan. What is the difference between a secure and unsecured line of credit? It can help you cover a variety of expenses, such as these: And expenses often come up that are hard to plan for.Ī business line of credit gives you access to the funding you need, typically with lower interest rates than what you’d pay for a credit card. For more information read our best options for startup funding.įor many businesses, cash flow varies monthly, and there may be discrepancies between the amount coming in and the amount going out. You have ongoing working capital needs and want to have the cash flow available to cover business expenses as they arise. When should you use a business line of credit?Ī business line of credit is ideal for companies that are looking for flexible financing options. You draw from your line of credit on an ongoing basis, and there are no set repayment terms. For instance, if you’re looking to invest in a marketing campaign or purchase new equipment, a term loan may be a good choice.Ī line of credit, meanwhile, allows you to access a certain amount, but you don’t receive the funds all at once. Business loans follow a fixed repayment schedule, and you’ll know how much you must pay every month.īusiness loans are a good option to fund a large, planned expense. When you qualify for the loan, you agree to repay the principal with interest over a set period.
With a short-term loan, you’ll receive a one-time lump sum of money. These two financial products just go about it in different ways. What is the difference between a line of credit and a term loan?Ī business line of credit and short-term loans are similar in that both give you access to working capital for your business. The borrower only pays interest on the amount spent, and when they repay the money, they can access the line of credit again. Key takeaway: A business line of credit provides business owners with access to a revolving line of capital when they need it. For instance, if you have a $50,000 line of credit but only use $10,000, you’ll only pay interest on the $10,000.
The nice thing about a business line of credit is that you’ll only pay interest on the money you spend. Then, you can either pay off the remaining balance or make minimum monthly payments. You can take out as much money as you need, assuming it doesn’t surpass your credit limit. As with a credit card, you can use it to make cash withdrawals or transfer funds to your business checking account.Įditor’s note: Looking for a loan for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.Ī business line of credit is ideal for short-term operating expenses, like payroll or inventory. It’s similar to a credit card, but a business line of credit tends to come with much higher credit limits. Instead of receiving an upfront lump sum, you have access to a revolving line of credit. What is a business line of credit?Ī business line of credit gives you access to a predetermined amount of money that you can borrow from on an as-needed basis. However, before jumping at this type of financing, it is important to understand the pros and cons so you can decide whether this financing option is right for you. It serves as something of an insurance policy in the event of any unexpected financial challenges or growth opportunities that require additional capital. ’Ī line of credit gives you access to the financing you need before you need it, but you only have to repay the amount you actually spend. That’s why taking out a line of credit could be a smart move for some businesses. If you wait until your business is in a desperate financial situation to apply for a loan, you may not get the funding you need in time.