At some point most companies face a choice over how to fund their business. Two of the most common ways to obtain business funding are through small business loans and business lines of credit. Alternative lenders like Triton Financial Solutions specialize in helping you determine which type of funding is right for your new or expanding business; below we take a look at which solution may be right for you.
What are the Specifics of a Business Loan?
Business loans are typically a one-time transfer of funds from a lender, paid back in increments over a set period of time. While both loans and lines of credit incur interest charges, the interest rates on small business loans are typically a bit higher. To offset higher interest rates, business loans usually operate via a fixed rate, meaning once you take out the loan your interest rate will remain stable. Additionally, business loans are typically paid back on a set schedule, making it easier for business owners to incorporate the payments into their monthly budget.
What Do I Need to Know about Business Lines of Credit?
Business lines of credit usually have lower interest rates than business loans. Most small businesses at some point decide to take out at least one line of credit to fund business expenses and manage unforeseen costs. While interest rates are lower, credit rates can fluctuate with the market, which makes payments more difficult to budget for. Monthly minimum payments are required but are usually less than with a small business loan.
Which is the Better Choice for My Business?
Business loans are the preferred method of funding for one-time, large capital expenses like machinery or expansion. Business owners typically put up collateral against a business loan, so often the amount of the loan and its terms are dependent upon the size of the existing business. If you are looking for a large amount of capital to be paid off in exact, specific payments, a small business loan may be best for you.
Lines of credit are a good, long-term solution for a growing business. As they are able to fluctuate with the needs of the company, business owners often turn to lines of credit when they require a flexible solution for funding the day-to-day operations of a business rather than one specific purchase. If you know you will be able to pay off your balance regularly, then a business line of credit is a solid investment for your business.