To run a business you will require funds and for the same, you will have to consider for the financial assistance and relevant options. Well, two possible searches will come in your mind, i.e. Business Loan or Line of Credit and you may ponder whom to choose. At this point, you must have the brief information of both so that you can figure out the one easily and for your solace, the detailed overview of both are listed beneath which will help you to take the decision in an efficient manner.
Business Line of Credit
A business line of Credit is similar to the personal credit and you will get a certain amount to invest in your business without paying any interest on the same amount. Line of credit is revolving in nature, means you can access the same again and again after clearing the previous debt, for example, if your capability to use the amount is $10,000 and you have used only $5000 and remaining left balance is $5000. However, if you paid your debt, i.e. $5000, then you can access $10,000 again without going for reapplication.
Line of Credit has a low-interest rate, but if you failed to pay the debt then the interest rate will increase just like the penalty in case of business loan.
Benefits of Business Line of Credit
- Business Line of Credit is for the sake of the small business owner so that they can meet the expenses of the business in an effective manner.
- It acts as a shelter to your business where the liquidity of money is regular and can be utilized as per the need.
- A business line of Credit is of two forms, i.e. Secured and Unsecured. If you wish to get an unsecured line of credit, then you will have to show the financial health of your business and it should be healthy.
- Business Line of Credit helps you to meet the short expenses, for example: if you need to maintain the temporary cash flow or want to clear the debt, then you can go for the line of credit.
- The business line of credit can be used to cover the payroll. For instance, if you are in excess debt and need to cover the payroll of the employees in a short frame of time, then you can use the business line of credit.
Small Business Loan
In small business loan, you can get the needed amount all at once and need to repay the same in a specific time period ranges from a year to 5 years and the same depends upon the loan amount.
Types of Small Business Loan
Secured Loan
In a secured loan, you can avail the amount against the collateral and the lender will be mostly banks and they will check your credit score. Actually, this is a score which describes your financial health, if the score is more than 800, then it is excellent and you can get the loan in an easy way. However, if your credit score is less than 400, the possibility of rejection of loan is higher. If you lie in between the range, then you will have to put some effort to avail the loan and in this situation, you will have to look other factors which are responsible for the loan such as Debt to Income.
Debt to Income means the ratio of the revenue generated from your business to the Debt taken to fulfill the needs of the business. If Debt to Income is lower and less than 36%, then you can get the small business loan in a smooth manner. However, if the same is more than 40%, then availability to get the loan will be lesser.
Where to find the Lender for a small business loan?
The small business loan is provided by the banks and small business association (SBA). The SBA is a Government agency who is tied with various lenders and they fulfill the needs of the borrower and SBA acts as a guarantor. If your business is financially stable and credit score is good, then you can move to such lender to get the small business loan.
Unsecured Loan
The borrower who failed to get the secured loan due to excessive debt and bad credit score can move for this type of loan. In an unsecured loan, the lender’s charges high-interest rate against the loan amount and they don’t need any collateral but they ask for the guarantor who has an excellent credit score.
Where to find the lenders for an unsecured loan?
There are various lenders available online who offer a small business loan. You will have to find out the one who can fulfill your requirement. But, make sure to take the legal assistance from your lawyer before going for any documentation process.
Benefits of Small Business Loan
- The borrower will get the lump sum amount and all at once.
- The repayment tenure is flexible which enables the borrower to pay back the amount effectively.
- Fixed EMI reduces the stress from the borrower.
- Small Business Loan is offered for the specific purpose such as the purchase of the equipment, Startup and significantly more.
- Refinancing is the unique feature listed in the Small Business Loan which can help you to clear your debt.
- Longer the business age, higher will be the chances to get the small business loan.
Hence, these were the key features of the Business Line of Credit and Small Business Loan. Now, you will have to choose the one as per your repayment capability. If your business revenue is good and needs the money for a shorter duration, then you can go for the Business Line of Credit. However, if you require more capital to balance the financial stability of your business, then you can choose a small business loan. Now, the ball is in your court and you will have to play safely. So, choose the featured option wisely and make sure to consult an expert before taking any step.
