Term Loans vs Lines Of Credit: Which Is Better?

When your small business needs funding to overcome a temporary gap in cash flow, there are a number of options available to you, other than going the slow route with applying for a bank loan. Two of these alternative options are lines of credit and term loans. Below we’ll discuss the advantages of each, so you can decide which is a better fit for your own circumstances.

Term loans

Term loans are usually intended for very large, expensive purchases, such as for major equipment or for buildings. The loan is for a fixed amount, and must be repaid over a pre-set period of time such as five or ten years. Term loans can be secured or unsecured, and when they’re secured, it’s usually by a major asset like real estate or business equipment. The advantage of applying for a secured term loan is that they generally carry lower interest rates than unsecured loans, which stands to reason, because the lender is exposed to greater risk. Obviously, the downside of having a secured loan would be that your assets are at risk, because if you default on the loan, you’ll lose those assets.

Lines of credit

Lines of credit generally cover short-term borrowing scenarios, and they operate in much the same way that a personal credit card would: you use a certain amount of available credit, and this reduces your available balance. The amount of credit you’ve used must then be paid back in monthly installments, which restores credit to the balance. One of the big advantages of business lines of credit is that you can borrow as much money as you want, up to your credit limit. This provides a great deal of flexibility and freedom, which extends into your repayment options. Instead of having a relatively fixed repayment amount like a term loan would, you can pay as little or as much as you want to restore credit to your balance.

For more help deciding between these two options, contact Bull Market Capital: Business Funding Solutions today by calling 336-579-0110 or using this contact form.

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