As small business owners navigate the myriad financing options at their disposal, they frequently encounter a pivotal moment, grappling with the challenge of picking the most suitable funding option. Among the array of choices, two commonly considered options are business term loans and business credit lines. These financial tools each bring distinct advantages to the table.
Need and Speed
When a one-time amount of capital is needed, business term loans (like those provided by alternative business lenders or SBA lenders) are the standard solution. These loans provide a lump sum amount of funding that can be used for working capital, debt consolidation, or tackling urgent needs such as funding inventory or payroll.
A business credit line works differently from a term loan in that once approved, the funds are available for you to access only when you need them. If you desire working capital for future business needs, want cash-on-hand in the event of a business emergency, need advertising funds or wish to grow your business but aren’t sure how yet; then a business credit line is the right option for you.
Financing Affordability
Many lenders offer business term loans with fixed interest rates, offering transparency regarding repayment amounts. This consistency proves advantageous for budgeting, enabling businesses to efficiently plan and manage their finances without encountering unexpected fluctuations in interest rates. However, SBA business term loans usually come with an adjustable rate which can be beneficial when market rate indexes are trending down. Whether it’s a fixed-rate or adjustable-rate term loan, It’s important to note that interest accrues on the entire borrowed amount right from the beginning.
On the other hand, business credit lines present a more flexible financing option. These credit facilities operate on a “pay-as-you-go” model, charging interest only on the amount utilized. This adaptability is particularly advantageous for businesses with varying or unpredictable funding needs. The ability to access funds on an as-needed basis provides a financial safety net without the obligation to borrow a lump sum upfront.
Choosing the Right Fit for Your Business
Ultimately, the choice between a business term loan and a business credit line depends on the nature of your business, its financial needs, and your best-fit financing structure. If you have a specific project or expansion plan in mind, a term loan may provide the structured funding you require. On the other hand, if flexibility and on-demand access to funds are crucial for your business growth, a credit line might be the more suitable choice.
By understanding the nuances of business term loans and credit lines, entrepreneurs can Borrow Confidently™ and make informed decisions that align with their financial goals and propel their businesses toward success.
Interested in accessing a fast and affordable business term loan or credit line? Contact our recommended lenders Headway Capital, OnDeck, or SmartBiz.