Difference between a Line of Credit and a Small Business Loan
A line of credit and small business loans have some major similarities as they both offer businesses good opportunity to leverage the assets in return for liquid capital. That amount can be spent on the variety of suitable operational needs. There are some really important differences between lines of credit and small business loans. Let us take a look at these two useful tools and highlight the main differences.
Line of Credit
- Loans are common entities in people's personal lives and business, but credit lines are used more widely. There are different types of credit lines such as unsecured and secured line of credit, no doc line of credit etc. If you have ever used a credit card in your name or your company's name, you have used a credit line. It is significantly different from loans because of the revolving nature which means credit can be easily replenished up to certain credit limit through regular payments from the company.
- As long as you are making regular minimum payments, your business will be able to access the available credit amount. This can change only on the basis of repayment and usage patterns. Loans have fixed terms while credit lines can be used as long as your minimum payment requirements are met.
- The credit limit for a line of credit is lower than the amount given by small business loan. Credit lines also offer no doc line of credit where don't have to go through the hassle of putting financial and personal documents together for the application process. All you need is strong credit history to get the approval for the funding. The same is not the case with business loans where documentation plays an important role in securing loan amount for your business. Lines of credit is also used for smaller and regular expenses whereas bank loans cannot be used for the day to day expenses.
Small Business Loans
- The small business loan is a fixed amount of money being provided by any financial institution to new or growing enterprises. The allowed amount of money are broad and it can also apply to near aspects of the operations. The concept behind the small business loan is quite simple. The business owner requests for loan and if it gets approved, the entire amount is given as per the request. The amount is further paid back with the monthly debt.
- Small business loans are little hard to get from the banks, but there are many alternative lenders in the market where it can be easily approved. The lenders look for a continuous operation period of one year along with yearly sales and bank statements. Loans are best for acquiring business assets, and a line of credit is best for short-term operation expenses.
- Loans are mostly driven by interest-rate, whereas lines of credit are not very interest-sensitive. Business loans have high interest rates and are normally fixed rates. However, lines of credit have low-interest rates and are variable. This means if you don't manage your credit lines properly by making late payments you would want to better off getting a business loan. At the same time, if managed well, a line of credit can get you better interest rate with consistent credit management.
In the world of trade and business, lines of credit and small business loans have the most important applications. Understanding the different between both helps a company make the best decision for the future. To help you understand each factor separately and in depth to help your business decide better, Midwest Corporate Credit offer financial consulting for all types of business related issues. Since the financial guidelines have become less transparent, entrepreneurs find themselves being burdened by the lengthy process of understanding the choice for their business. Ultimately, they end up with broken promises.
Midwest Corporate Credit has been providing faster and more transparent business solutions such as no doc line of credit, unsecured credit lines and easy business loans that are flexible and affordable at the same time. We offer you high approval rates, favorable funding methods, and terms. Our professional consultants perform complete business analysis to determine your approval chances. To set an appointment with our consultant, call us at (844) 220-8826 or visit www.midwestcorporatecredit.com and we will be happy to assist you.