Business Line of Credit vs. Term Loan

Which Type of Business Financing Is Right for You?

Two common forms of business financing are a business line of credit and a term loan.

The right choice depends largely on why your company needs capital and how you expect to use and repay it.

What Is a Business Line of Credit?

A business line of credit is generally a revolving facility.

The business receives an approved credit limit and can draw funds as needed, subject to the terms of the facility.

As borrowed amounts are repaid, availability may become accessible again.

Lines of credit are often used for:

* Working capital

* Payroll

* Inventory

* Supplier payments

* Seasonal needs

* Project expenses

* Short-term cash flow gaps

What Is a Term Loan?

A term loan generally provides a specific amount of capital upfront that is repaid according to an agreed schedule.

Term loans may be appropriate for:

* Business expansion

* Acquisitions

* Major investments

* Equipment

* Refinancing

* Other longer-term capital requirements

Which Is Better for Working Capital?

For recurring working capital requirements, a revolving line of credit may provide greater flexibility.

If a business has a specific one-time capital requirement, a term loan may be more appropriate.

Can a Business Have Both?

Yes.

Depending on the company’s financial profile, a business may have a revolving line of credit for working capital and separate term financing for equipment, real estate, acquisitions, or other long-term investments.

How Do Lenders Decide?

Lenders may evaluate:

* Revenue

* Cash flow

* Profitability

* Existing debt

* Accounts receivable

* Collateral

* Credit history

* Financing purpose

* Time in business

Find the Right Credit Structure

The goal should not simply be to obtain financing. The financing should match the purpose for which the capital is being used.

Contact Lirodean to discuss business lines of credit, term loans, and other financing options.

All financing is subject to lender underwriting, approval, documentation, eligibility requirements, and applicable terms.