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Business loans and business lines of credit each serves a unique purpose that could propel your business forward. The first thing you need to decide is whether to apply for a lump-sum loan that offers fixed payments over a set period of time or a line of credit that you can tap at will. Your choice will depend on your plans for the money and how disciplined you are at handling available cash and repaying debt. Read on to learn the difference between a line of credit vs. a loan.
A business credit line gives you the flexibility to take out funds when needed and repay them along the way. Similar to a credit card, a credit line allows you to borrow up to a certain amount and then pay back and “re-borrow” from the line until the term expires, after which you will have a designated amount of time to pay off the debt.
One advantage of business credit lines is that they allow you to borrow only the amount of money your company needs when your company needs it, so you don’t get stuck paying unnecessary interest charges on unnecessary funds.
Lines of credit are designed to serve a company’s short-term financial needs. While not appropriate for financing fixed assets, they work well to fund expenses your company pays for over time.
Business loans provide you with a fixed amount of cash that can be used for any legitimate business need, such as operating capital or purchasing real estate or equipment. Loans must be repaid, generally with interest, over a fairly short period of time.
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Loans are valuable in that they deliver capital now. Your company repays the loan in pre-arranged monthly installments over a defined period of time, and you can repay the loan ahead of schedule without penalty. The downside of term loans is that the lender usually charges fixed interest on the amount borrowed – interest you continue to pay even after the loan has been paid down considerably.
The decision between a loan and a line of credit often comes down to whether you want to make a specific purchase or whether you need to have funds on hand for ongoing expenses and/or unexpected problems.
For more information on a line of credit vs. a loan, please contact a Nevada Corporate Headquarters representative at 1-800-508-1729, Monday thru Friday,8 am-5 pm PST.