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.
Conclusion:
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.
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