Both term loans and business lines of credit are financial products which can be a lifesaver in helping your small business survive difficult times or to take advantage of business opportunities when they arise. However, there is a significant difference between the two transactions, and one or the other may not be advantageous to your particular small business. Here are the differences between the two products, so you can make an informed decision on which would be more helpful to your business.
Typically, you would receive the full amount of a term loan in one lump sum after borrowing that amount from a bank. You would then have a fixed amount of time to repay that amount, usually via monthly installments which are all equal. Included in those monthly repayments, is a principal component, which actually repays the amount of money borrowed, and an interest component which is imposed as a fee by the lender for providing the use of the money. Even if you don’t use all the money, you would still be responsible to repay it all to the lender.
Business Lines of Credit
This type of funding solution is more flexible than a term loan would be. The funds available through a business line of credit can be used whenever you need them and left sitting there in your account when you don’t need them. They can be extremely handy for paying unanticipated expenses that pop up, or for taking advantage of business opportunities that arise unexpectedly. You will be obliged to pay interest on any amount of the line of credit which you actually use, but not on the unused portion.
By repaying any used portion of the business line of credit each month, you can restore the original balance of that line, so that it is available for use in the future again. In most cases, the interest rate attached to a business line of credit will be lower than that of a term loan, unless you get into the habit of paying late with your monthly repayments. In that case, your interest rates can soar to become very high, as opposed to a term loan interest rate, which remains fixed throughout the duration.
Interested in a Loan or a Business Line of Credit?
At Whitefish Funding, we offer a variety of financial products to help small businesses meet their obligations and to help grow the business. Contact us today to find out more about some of our offerings, and how you can take advantage of them.