Business Loans vs Business Line Of Credit

If you’re looking to fund or grow your business, you might be wondering what the differences are between a business loan and a business line of credit. Generally, a business loan is given as one lump sum. The amount of the loan will depend on both your lender and your application, and your loan can be either fixed or variable, in terms of interest rates.

A business loan is perfect for renovating, purchasing a business, expanding your business, or paying off any debts that your business might have. A business line of credit differs in that you have the power to withdraw funds as needed, instead of in one lump sum. However, you might find that a business line of credit is better suited to smaller projects, as the interest rate on a business line of credit can usually change.

Luckily for you, we have everything you need to know about both business loans and business lines of credit in our handy article below.

Business loans vs business line of credit

Business loans are capital offered by lenders to businesses. A business loan is specifically intended to help you to grow your business. Like all other loans, it involves the lending of funds which you then repay back to your lender with added interest.

A business loan comes in handy if you don’t have the extra funds to build your business yourself. Business loans also come with either a fixed or variable interest rate and can be used for most aspects of a business. Generally, you can use it to purchase a business, improve your cash flow, expand your business, or pay off any debts. Depending on your lender, short and long term financing may also be an option for you.

Another way to fund your business is to take out a line of credit with a lender. A business line of credit works similarly to a credit card. It works to give your business access to a limited pool of funds.

With a line of credit, you can usually withdraw funds as needed, whereas a business loan would come to you in one lump sum after your application is approved. Generally, with a line of credit, you only need to pay interest on the amount withdrawn, instead of the total amount available to you. In some instances of lines of credit, you can reuse the funds once you’ve repaid them. This means that there’s no need to reapply every time you need funding.

Some lenders may need a business line of credit to be secured against an asset of yours, such as your home, or the property from which your business is run if you own it.

Which is better?

While business lines of credit give you an ongoing amount of funds to use, a business loan provides you with a one-time lump sum. You will usually pay interest on the full amount of money from a business loan, while you might only pay interest on the money you use with a business line of credit.

Due to the structure of a business loan, you will have to make consistent payments, as laid out in your loan terms. Repayments need to be on time and consistent. With a business line of credit, generally, you only pay for the funds you’ve already used. You won’t need to make a payment towards your line of credit if you haven’t used any funds, or if you have repaid the funds you have used previously.

Because business loans tend to have fixed rates, you might find them better suited for longer-term financing. When it comes to a need for short term financing, such as adding inventory, stock orders or temporarily paying staff, you might find that a business line of credit is better. However, lines of credit are more likely to have variable interest rates. This means that your repayment amount can change at any time and that you could end up repaying more than the amount that you withdrew.

What will I need to apply?

For both a business loan and a business line of credit, a lender may need to see:

Personal identification – Such as a driver’s licence or a passport to prove your identity and address.
Business verification – You will need to be able to prove your ownership of the business.
Financial history – Your lender will almost always want to see how strong both your personal and business finances are. They may need to see bank statements, sales records, and other financial documentation before they approve your application.

Depending on your credit score and history, a lender may wish to see more or different forms of documentation before they approve your application for either type of funding.

What other factors do lenders consider?

Before approving your application for a line of credit or a business loan, your lender may take the following into consideration:

Profit – Lenders may require you to show that you bring in enough money to afford your repayments and that your business can bring in enough profits to stay afloat.
Time in business – Some lenders may want your business to have a track record of doing business for at least 6 months, although a few years is generally ideal.
Business debts –Lenders may ask about any outstanding debts in your business’s name, such as loans that have been defaulted on, or company credit cards that have overdue bills attached to them.

These may not be the only factors that your lender takes into consideration.

All credit histories – Having a good credit history may not be necessary to gain approval from a private lender. Many people seeking finance are rejected by banks for having less than ideal credit history go on to successfully apply for a loan with a private lender.
Fewer requirements – Banks will generally want excellent credit, a good repayment history, income requirements, and proof of income when approving your loan. Private lenders often have fewer requirements, making the whole process much easier.
Flexible payment terms – Private lenders may be able to offer you a more flexible rate compared to a bank.

Where does Tiger Finance come in?

If you’re looking for the right loan to grow your business, look no further. Tiger Finance can help to get you a loan in four easy steps. You will have a free consultation with one of our specialists, and we will tailor-make you a loan. We will negotiate with lenders on your behalf before you are approved.

We have helped countless Australians with both good and bad credit ratings to be funded for their business. You’ve got better things to do than wait weeks for your application to be approved. We understand, and that’s why we can have you approved on the very same day that you apply with us.

The lending criteria from other lenders can be way too strict and can stop you from achieving your business goals. That’s why we’re here to make the entire process simple and easy, from start to finish.

How we can help

Our finance specialists can help you find the right business loan for your project. Business loans can be a tricky topic, but we can find a loan that makes your business ventures that much easier.

If you are one of the many Australians finding getting a business loan difficult, Tiger Finance can make the process simple and pain-free. Call and talk to one of our loan specialists today for your free initial consultation.