What You Need To Know About Getting Lines of Credit Versus Term Loans

What You Need To Know About Getting Lines of Credit Versus Term Loans

As a business owner, you know that capital is key to running successful operations day in and day out. Maintaining enough working capital isn’t always easy, though, especially when a slow season hits or the economy takes a downturn. When times are tough and you need more cash flow to tide you over, you may be wondering whether getting lines of credit or traditional term loans is right for you. While both financing options have their pros and cons and can get you the funding you need, the one that’s best for you depends on a few different factors. Here are a few key facts that can help you decide which one is right for your business.

Term Loans Give You a Lump Sum

If there’s a set amount of money that you know your business is definitely going to need and you have specific purposes for the money, you may want to consider getting a term loan. Term loans give you an up-from lump sum that you will then pay back over time. If you have one-time expenses like refinancing debt, opening a new store or replenishing your stock, this could be the way to go. Keep in mind that your monthly payments towards the loan will depend on your interest rate and the period of time, or term, over which you agree to pay it back.

Credit Lines Give You Funding Flexibility

If you don’t have a specific purpose in mind at the moment or don’t know exactly how much capital you’ll need, you may want to consider applying for a business line of credit instead of a term loan. Much like a personal credit line, business credit lines can act as a funding safety net. You can use only what you need when you need it, so you pay back only what you actually use. This gives you flexibility to cover ongoing expenses or emergencies.

Maximum Amounts May Vary

Another factor to consider is how much funding you think you’ll need. While most term loans offer between $25,000 and $500,000 in funds, some credit lines can extend upwards of $1 million.

From covering payroll to replenishing inventory, consistent working capital is the key to running a highly successful and profitable business. When business is slow, however, it can be tough to choose which financing option is right for you. If you’re trying to decide between lines of credit and term loans, keep these key facts in mind and you can confidently make the right decision for your company.

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