Small Business Loan vs Line of Credit

Small business loans and small business lines of credit are the two most popular search terms in the business lending community. Let’s take a closer look at each of these loan types and spot a few key differences, so you fully understand what you are shopping for.

Small Business Fixed Term Loan

A small business loan is, generally speaking, a fixed amount of money offered by a financial institution to a new or existing business. We call this a fixed term loan. Upon approval, the loan is typically funded in one lump sum to the business account via wire transfer.  Repayment terms can range from a few months to as many as 10 years and are usually paid back on a monthly basis. The longer pay periods, usually over a year, are considered to be a long term debt payback. However, many alternative lenders offer unique repayment alternatives, including extended periods, where no payments are required, as well as many other unique features.

Most people think that getting a small business loan is hard, but ClearCoast Capital Advisors makes it easy to be approved. Instead of applying with dozens of random lenders, you make a single call to ClearCoast and we will evaluate which lenders are the best fit for your business. One call. One process to work through. Easy.

Now there are many reasons why a fixed term loan may be the best option for a small business. Things like purchasing a new facility, expanding your current facility, large unexpected financial obligations, or purchasing a new software system; the list can go on and on.

However, there are also things that fixed term loans are not always the best solution for. We believe that short-term cash flow problems should not be fixed with long-term debt. When possible, short-term cash shortages should be addressed with short-term cash injections into the business, that can be quickly and easily paid back. This is what makes small business lines of credit so attractive.

Small Business Line of Credit

A small business line of credit is different from a fixed term loan in several ways. Upon approval, you will be able to draw funds from your line of credit as needed and as prescribed under the terms of your loan. You will only pay interest and owe payments on the outstanding balance, and you can pay that balance down to have access to more funds.

Small business lines of credit work very well for short term cash flow issues. For example, if you win a new contract and need funding to hire a new team member or buy materials, you can draw funds from your line of credit and pay it off when you get paid for the project. Or maybe one of your customers called and asked for another 30 days to pay a large invoice, but your team cannot wait 30 days to be paid. You can draw enough cash from your line of credit to cover your payroll and overhead, until your customer pays your invoice.

While there can be many other aspects to consider when shopping for a loan, remember this: It may not always be possible, but it is always wise to avoid solving short-term cash problems with long-term debt.

You know what else is wise? Picking up the phone and calling CearCoast Capital Advisors. We don’t work for lenders. We work for you.  (877) 687-7049.