The information below is provided to help you understand the different types of business loans, what type might be suitable for your needs and how it can benefit your business says Brian Colombana.
Everyone’s financial situation is different, so if you have any questions or need a little further clarification on a topic, please don’t hesitate to contact us!
What Is A Term Loan?
A term loan is a specific type of business loan that requires you to pay back the borrowed amount over an agreed upon timeframe, or term. The length of the term can range anywhere from one month to five years, but be sure to consider how repayment schedule will affect your cash flow before accepting a term loan.
Why You Might Need A Term Loan:
1. When you need a large lump sum of capital and can repay it over time (typically anywhere from 12-60 months).
2. When your credit score is too low for a business line of credit but you know that you will be able to repay loans in the future–a term loan would be an ideal solution.
Check out our blog post to learn more about how to get access to capital when your business is just getting started!
What Is A Line Of Credit? A line of credit is one of the most popular types of business loans due to its flexibility, repayment options and easier qualification process. With a line of credit, you are approved up to a certain amount which acts as a credit limit says Brian Colombana. This amount is the total of your line of credit, which you can access anytime up to your approved limit. You usually pay interest on the portion that you draw from your line of credit and once paid off, the outstanding amount becomes available (just like a bank account).
Why You Might Need A Line Of Credit:
1. When you need to borrow small amounts more often than one large loan (ex. payroll or insurance).
2. When you don’t have any collateral to use for a term loan and know that you will be able to repay loans (but not necessarily at specific times).
3. For seasonal businesses when cash flow varies throughout the year–a line of credit helps smooth out these fluctuations.
4. For businesses with a bad credit history. A line of credit is a great way to build business credit and get approved for a term loan in the future!
What Is A Term Loan With A Line Of Credit Option? This type of business loan allows you to qualify for both a term loan and a line of credit, which can help you receive funding sooner than waiting on each application process. In order to qualify for this type of loan, you will need an established business with collateral or an excellent personal credit score (good for self-employed individuals). The criteria used by different lenders when approving this type of business loans varies so are sure to check their qualification requirements before applying!
Why You Might Need A Term Loan With A Line Of Credit Option:
1. Businesses who have a lot of inventory, assets or equipment that they can use as collateral for a term loan can speed up the loan process by being approved for both at the same time explains Brian Colombana.
2. If your business is seasonal, you will be able to access short-term loans to cover down times and long-term loans to cover high times (for example, if you need extra money for holiday season).
3. Similar to point #4 under “What Is a Line Of Credit”, this type of loan works well for businesses with bad credit or no credit history because it acts as proof that the company is successfully operating before receiving their large term loan.
If you have any questions about the difference between a line of credit and a term loan, be sure to reach out!
Conclusion:
A line of credit and a term loan are two very different types of business loans, which means they also come with additional benefits as well as drawbacks. Be sure to check out our blog post on the difference between a line of credit and a term loan for more detailed information regarding these business financing options!