Business loans and lines of credit can be an attractive way for a business owner to obtain the funds they need. These tools allow businesses to access short-term funding from a lender without having to wait for the money to be available through other means. However, when considering business loan versus line of credit, there are some important differences that should be examined. To help you make the right choice, it's helpful to understand both sides of the issue.
The first difference between business loan versus line of credit is the speed at which funding is obtained. When applying for a loan, business owners are typically required to provide a company filing plan and a credit report. When utilizing a line of credit, funding is obtained quickly based on the credit report information. As such, there is not time for a detailed business plan or credit report. Both methods of borrowing money require thorough planning.
Another difference between business loan versus line of credit is the interest rates. Business loans are typically obtained at a fixed rate, while a line of credits come with variable interest rates. Often, business owners are able to lock in the lower interest rate on a line of credit, but this may not be possible with business loans. As such, it's often best to research each method of borrowing before deciding on the best option for your company.
Interest rates can be a great determining factor, especially when a company is just starting out and needs a little bit of extra cash. However, business loan versus line of credit interest rates should not be the sole deciding factors. Ultimately, you want to choose a loan source that offers the best return on investment. If your company succeeds, the interest you pay back on the business loan will certainly be worth it. However, if the business fails, you'll have nothing to show for your efforts.
Also important in deciding between business loan versus credit card debt is your company's overall health. Many credit card companies penalize good businesses for not paying their bills in a timely manner. However, if a business is regularly short on cash, this too can result in financial difficulties. If your business is in danger of going bankrupt, a credit card may not be your best option. Although you may see an immediate financial relief, in the long run you may find yourself even further in trouble.
While some business owners may use a credit card simply because they are more comfortable, it is important to remember that credit cards carry much more interest than a business loan. Additionally, using a credit card can negatively impact your business profits if payment is late or you run into debt. By all means, use a credit card when necessary, but only in a manner that does not negatively impact your business. A business loan can be used to purchase materials and equipment, and to make purchases within the company. Credit cards, on the other hand, should only be used for emergencies or to make significant purchases that have long-term consequences for the company.
Ultimately, the decision between business loan versus credit card debt is a personal one. Business owners must . . . . . . evaluate their own circumstances in order to determine which method is in their best interest. Businesses should never take the easy way out and should instead explore all options available. In doing so, they will likely find the perfect solution between business loan versus credit card debt.
To learn more about business loan versus line of credit debt, contact a local business finance professional today. They will be able to answer any questions that you may have, and can also provide valuable business advice. To learn more about business loans and finding the best solution for your business, register for a free business guidebook. Successful business owners make the most out of every aspect of their business, and the same can be said for debt. When it comes to finding an answer between business loan versus line of credit debt, your bank account is the place to start.