While lines of credit are probably the most flexible business financing option available, sometimes ordinary loans fit your circumstances better than obtaining a line of credit. Usually the determining factors will be how you plan to spend the money, and how quickly you need it. If you need a large sum of money for a major investment, a loan may be more to your advantage, whereas if you need regular access to funds on an ongoing basis, a line of credit may be more beneficial.

Here are the advantages of each kind of financing.

How a term loan works

Whenever you take out a term loan, you will be committed to making regular payments, and an interest rate which has been fixed ahead of time. While this allows for easy planning for your monthly budget, because the amount is always the same, it does lock you into repayments which typically cover several years. That means if you’re going to take out a term loan, you should be prepared to make this same regular payment for the duration of the term loan. You should also be sure that committing to the total amount of your repayment is worth the benefit that you’re getting from receiving the upfront sum of cash from the loan.

How a line of credit works

Whenever you use your business line of credit and withdraw funds from your account, you will immediately be charged interest on that amount, and it will decrease the total available balance you have to be drawn upon. Interest rates associated with lines of credit are typically variable, and are closely linked with the prime rate prevailing at the time. The beauty of lines of credit is that by making payments, you can restore the available balance to you, so that it remains an ongoing source of available funds, rather than being depleted down to zero.

Seeking lines of credit for your business? 

Lines of credit are the most flexible financing arrangement in the business world, because they can literally be used for any reason. Contact us at Avery James if you are seeking a line of credit for your business, because we may have an option that fits your circumstances, and which will give your business a huge boost.