When a business requires a cash infusion, they generally pick one of two options: a business loan or line of credit. However, these two forms of financing have different features, advantages and pitfalls. In order to implement a strategy that works best for your business, it is important to distinguish between the two and understand how they work. Read on to understand the difference between a business loan and a line of credit.
Table of Contents
A business loan and a line of credit serve the same purpose: fulfilling the capital needs of a business. However, there are certain differences between the two:
Consider the following questions while trying to decide on the best type of financing for your business needs
In Conclusion
While a business loan or line of credit aren’t the only two financing options, they are certainly two of the most common and reliable ones. Before zeroing in on either option, assess your business’s performance, capital, financial needs, and goals for the future and account for all the relevant factors. This analysis will help you in determining the financing option that works best for your success as a business
FAQs
Q 1. Which type of financing is better for borrowing big sums?
A business loan allows you to borrow large sums.
Q 2. Which type of financing offers more flexibility of use?
A line of credit provides more flexibility of use.
Q 3. How does a line of credit work?
A line of credit is revolving credit and provides you with a balance that accrues interest. If the line of credit is not used, the borrower does not have to make payments.
Q 4. Why is a good credit score important?
A good credit score attests to your reliability as a borrower.
Q 5. Which type of credit is a business loan and a line of credit respectively?
A business loan is a form of instalment credit, and a line of credit is revolving credit.
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