Business Loans vs. Lines of Credit?
Business lines of credit let you draw funds whenever you need working capital, seasonal or cyclical cash flow, emergency funds, or other short term financing and only make payments when you use the line.
Business loans are useful for long-term financing and fixed asset purchases, business loans provide a one-time lump sum with regular fixed monthly amortizations. Now, you have to choose whether you need to apply for a business loan (where you are given a lump-sum amount that offers fixed payments over a period of time) or a line of credit (that you can use and pay back at will). Your choice will be dependent on your plans for the money and how disciplined you are at handling available cash and repaying debt. Essentially, a fixed-rate business loan is a second mortgage where it allows you to borrow money and repay it in fixed monthly installments within a period of 10 to 30 years. Especially if you need a large amount of money at once or if you are starting a business, then this alternative is the best deal that you can get.
A line of credit, on the other hand, replaces certainty with 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 writing 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 of the amount borrowed – if you don’t borrow, then there is nothing to pay for. This being said, it is safe to say that this financial option is suitable for people who need to borrow money at irregular amounts. Of course, be prepared with your reason for needing the money. Simply saying “I just need the money” to your lender does not constitute confidence nor careful thinking.
Earlier in this session, you studied a number of different purposes. Get into the details. Be ready to answer questions regarding your business, and be ready to stress on your financial performance both in the past and in the future. You’ll be more impressive if you have carefully thought out and become familiar with your plan. Bring your accountant if you need help. Most places have some flexibility. Remember that lenders would appreciate it if you are thinking about how to pay them back, instead of just on how you can get the money from them. You can even go to a loan broker if you need to avail of business loans or lines of credit. These kinds of business loan providers will give you advise on what you need to have in order to get approval. They can help you in accomplishing your Dun and Bradstreet applications as well as in complying with Homeland Security requirements.
All the luck to your business. If need be, consult a finance professional to help you in your business loans vs. line of credit decision. Some research now can save you a fortune in the long run.
Global Financial Services
Suite 305, 468 North Camden Drive, Beverly Hills, CA 90210
(310) 860-7510
