Do you feel like you’ve come to a place where a cash influx is necessary to run or grow your business?
Every small business owner reaches this point sooner or later…
Perhaps, you’re looking at a term loan or a line of credit and wondering which is your best option. Let’s take a closer look at both.
Option #1: Business Term Loan
A business term loan involves borrowing a lump sum of money and paying it back over a specified period of time, which could range from a year to 30 years. The loan is “amortized,” which means equal monthly payments and interest is built into each payment.
Option #2: Business Line of Credit
A business line of credit is similar to owning a personal credit card. You have access to a specific amount of money to be used at your discretion, and you don’t owe anything – payment or interest – until you use the money.
Which Small Business Financing Option Is Best?
If you need money for something that will take several years to pay off, a term loan works best. It could be a piece of equipment or construction – whatever it is, the bank will want to know specifically what the money will be used for.
On the other hand, if you just need cash available as a sort of cushion for conducting day-to-day business, a line of credit will suffice. One example could be to cover payroll when another issue has your funds temporarily tied up. The money is there when you need it.
So as you can see, a business line of credit or business term loan are great options for funding your small business, depending on if your need is immediate or just-in-case.