Business Loans Versus Line of Credit: What’s Your Best Bet?

When it comes to obtaining funds for your business, let it be known that you are actually not limited to outright investment or bank loans. In reality, there are more options available that you might not be aware about, such as business lines of credit or business loans. Both these options are feasible and definitely worth considering, if you are in the market looking for financing for your small business.

Your options, defined

How they work

Now, first thing’s first—you need to figure out whether you need a line of credit that you can access on a whim or a lump-sum loan that you can pay fixedly over a specific period of time. As with any decision, your choice here will depend on 2 things: (1) your plans for the money and (2) your discipline in handling available cash and repaying debt.

A fixed-rate business loan is essentially a second mortgage —you borrow a set amount and repay it in fixed monthly instalments over 10 to 30 years. It is usually the best option if you need a given amount all at once—particularly if you are starting a business.

In a line of credit, on the other hand, certainty is replaced by flexibility. For example, if you arrange for a $50,000 line of credit, you can withdraw funds in increments, such as $1,000, $4,000 or $5,000 by simply issuing a check. Payback is as flexible as withdrawal, usually with interest-only payments allowed during, say, a 10-year borrowing period. This means that you will only pay for the interest on the amount borrowed—if you do not borrow, then there is nothing to pay for. This being said, it is reasonable to say that this financial option is great for people who need to borrow money at irregular intervals. Of course, be prepared with your reason for needing the money. “I just need the money,” does not inspire confidence, nor does it show that you have considered it thoroughly.

Get the help that you need

The fact of the matter is lenders will be more impressed with you if you show them that you have carefully thought about your business plans. Take your accountant with you if you need help. Most places allow for some flexibility. Remember that lenders would appreciate it if you are thinking about how to pay them back, rather than just on how you can get the money from them.

Another service you can try as a source for business loans or lines of credit is a loan broker. These kinds of business loan providers will give you advice on what you need to have in order to get approval. They will help with understanding and deciphering complicated forms like Dun and Bradstreet applications and also make sure you comply with other necessary requirements.

It is a great idea to consult a finance professional to help you with your business loans versus line of credit dilemma. A little research now can save you a fortune in the long run. This is because you simply do not want to leave something as important as financing your business to chance. The margin of error may not be particularly high, but it is there, and you do not want to waste your time or the lenders’ time by submitting an application that likely will not even be considered, let alone approved.

Indeed, when it comes to financing your business, getting a business loan or a line of credit is a great option to consider outside of the more traditional routes. They may not be conventional, but they are handy quick fixes that can satisfy your financing needs on the get-go. After all, your business is only as good as the money you put into it— and that is a fact.