Money is the most essential need for any business. If a business doesn’t have sufficient liquidity it won’t run smoothly. Every business now and then needs financial assistance. Luckily, to achieve the financial goals, there are two options available to choose from- A line of credit and a small business loan.
Both of the financial options share similar features and a few distinctions. There are many people who often get confused between these two. In this post, we will shed some light on the differences between these two.
So, let’s get started…
Small Business Loans vs line of credit
Small Business Loan
As the name suggests, a small business loan is a type of loan tailored to meet the needs of the small/medium sized business. In this form of a loan, a fixed amount of money is offered by financial institutions to the borrower. The loan amount will be paid back over time with a monthly debt. Getting a small business loan is hard, but there are several lenders and companies that approve it easily.
Helps in Expansion
Whether the company is new or old, a common problem encountered by business owners is to understand their expansion needs that would lead to higher revenue. A small business loan addresses this issue and gives instant cash that helps them buying new equipment or moving to a new facility possible. In short, this type of loan is also useful to address the needs of business expansions.
Address financial obligations
For many small enterprises, managing cash flow is difficult. It presents its own problems to the businesses. Although your business may perform strongly every month, the payments to vendors, tax bills, etc fall close together and create a shortage of cash. A small business loan, you can avoid such type of crunch and other obligations. This loan allows you to address these essential and instant needs for payments, making it manageable.
Small business loans also allow your business to address the price tags associated with buying expensive equipment, making improvements, etc. It gives a customer-facing area of your facility a decent upgrade, without making you concerned regarding the extra expense.
Line of Credit
This type of financial aid is more widely used than loans. It is useful for businesses or businessmen who have a credit card by their name. The line of credit is different from Line of Credit as it revolves around the nature of credit. While a loan only provides a single defined amount of money, Line of Credit can replenish the credit limit through your company’s payment.
Lines of Credit can be unsecured or secured. They are often revolving, which means you can tap into them repeatedly. Let’s say if you have a line of credit for $50,000 and you take out $25,000, you have still access to the remaining $25,000. It is as same as carrying a credit card with a specific limit. Once it is paid, you can buy more items from it.
Wrapping The Post
In the business world, both small business loans and lines of credit have their own importance. You can choose the one that caters to your business needs. If you are seeking any information about these loans, get in touch with Fundwise Capital today. We can help you acquire the best loans according to your business requirements.