The purpose of obtaining financing is to help your business grow. Many different types of financing can achieve this objective. Contrary to what you may think, the right choice for your company isn’t always a question of either one option or the other. Often, several different funding methods can provide advantages, complementing each other and making your company more successful. The question of lines of credit versus loans is one of those times.
Why Lines of Credit and Loans Are Both Important
Even though there’s a big difference in the way loans and business credit lines work, both types of financing fulfill important roles for your company. A loan is designed to provide a large amount of funding for a single need while a line of credit offers less funding to handle a wider variety of necessities. Every business owner faces situations where both of these financial tools can help. The trick is knowing which one to choose for each need.
When Loans Are a Great Choice
Business loans are especially helpful when you need a large amount of capital for long-term purchases. Many loans have low-interest rates that save you money on large-scale items such as heavy machinery, property, and business equipment. When you multiply the amount of money you save on interest by terms of 15 to 25 years, the difference is astounding. For example, a favorable loan can help small construction businesses purchase top-tier construction equipment comfortably.
Other loans are a good fit for bulk inventory purchases. The larger the amount of inventory you can afford, the better the pricing tier your business can qualify for. Again, loans are excellent for saving your business money. Depending on your company, you can apply for SBA 7(a) loans, SBA 504 loans, traditional business loans, and real estate mortgages.
The Advantages of Lines of Credit
There are a few important downsides to loans. For one thing, they’re not very flexible. You can only use the money for the specific purpose you applied for, such as real estate or equipment. Also, it takes quite a while to obtain the money from the loan, and you need good credit to qualify.
Business lines of credit can fill in those caps successfully. A line of credit offers amazing flexibility, giving you the freedom to spend the money however you want. There’s no need to wait for approval when a need appears; your revolving credit is always ready to go. Both of these financing options complement each other well.