Should You Choose a Line of Credit or a Term Loan?
When you are ready to scale your business and make a positive impact on your bottom line, you can do so in a number of ways. You can make leaseholder improvements, purchase more real estate, invest in more equipment, or increase working capital to take advantage of new opportunities.
To accomplish any of these activities, you’re likely to need funding. Both a business line of credit and a business term loan can serve you well. Determining which to choose depends upon your goals. Here’s what you need to know about both:
A business line of credit provides you with access to a specific amount of money that you can draw on as needed. You pay interest only on the amount you borrow. A business line of credit is often the perfect flexible financing solution for short-term cash flow needs.
- You can use it multiple times for various purposes.
- You only make payments on the balance of the money you’ve borrowed.
- It is ideal for funding day-to-day operations like purchasing extra inventory, ordering supplies, or meeting payroll, and managing unexpected cash flow issues.
- The line of credit’s interest rate can improve with your good credit management.
- There are no closing costs.
A business term loan provides you with a single, defined amount of money. It can be your best bet for one-time financing needs for construction, renovations, or equipment purchases.
-You will be qualified to use the loan money for one specific purpose and only that purpose (e.g., an equipment loan cannot be used for building renovations).
- You make a regular monthly payment on principal and interest for the duration of the loan.
- This loan is best for long-term debt you plan to pay off in two to seven years.
- To qualify, you’ll need to have good personal credit and to give your personal guarantee.
- Your interest rate, length of term, closing fees, and maximum loan size depend on your business revenue. Ask about fixed versus variable rate options.
The information contained herein is for general informational purposes only and does not constitute tax, legal, or business advice.
Brought to you by Nu Direction Lending, a digital-first business lender that was formed and is funded by credit unions.To learn more about term loans for your business, visit nudirectionlending.com or contact us by email at firstname.lastname@example.org or by phone at 866-354-7151.
Nu Direction Lending is a digital-first business lender that was formed and is funded by credit unions. We combine the speed and convenience of online lenders with the personalized touch of the local credit unions who help fuel our local economies.