{"id":5976,"date":"2019-04-30T17:55:42","date_gmt":"2019-04-30T14:55:42","guid":{"rendered":"https:\/\/www.lending-express.com\/blog\/?p=5976"},"modified":"2019-06-19T17:28:07","modified_gmt":"2019-06-19T14:28:07","slug":"line-of-credit-vs-loan","status":"publish","type":"post","link":"https:\/\/www.become.co\/blog\/line-of-credit-vs-loan\/","title":{"rendered":"Line of Credit vs Loan: What&#8217;s the Difference?"},"content":{"rendered":"\n<p><span style=\"font-weight: 400;\">You\u2019ve begun looking into business financing, and have come to a fork in the road: line of credit vs loan. They\u2019re two very different types of funding solutions, and their distinctive features will naturally raise some important questions.<\/span><\/p>\n\n<p><span style=\"font-weight: 400;\">What are they?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">What\u2019s the difference?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Which is a better fit for your business profile and needs?<\/span><\/p>\n\n<p><span style=\"font-weight: 400;\">Before making the choice to apply for one or the other, you\u2019ll want to get the answers to those questions. Keep reading to get those answers, and much more.<\/span><\/p>\n\n<blockquote>\n<p><span style=\"font-weight: 400;\"><strong>One important note:<\/strong> of course, the type of business will affect the kind of <a href=\"https:\/\/www.become.co\/loans-by-industry\/\" target=\"_blank\" rel=\"noopener noreferrer\">industry loans<\/a> a business needs,<\/span><span style=\"font-weight: 400;\"> as well as the specific circumstances that business finds itself in. Be sure to weigh your options carefully in order to choose the right funding solution for your business.<\/span><\/p>\n<\/blockquote>\n\n<h2><span style=\"font-weight: 400;\">What is a line of credit?<\/span><\/h2>\n\n<p><span style=\"font-weight: 400;\">A line of credit loan is a flexible financing solution which allows the borrower to use funds on an as-needed basis and up to a predetermined limit. Business lines of credit, more specifically, come in several varieties including:<\/span><\/p>\n\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Unsecured or secured lines of credit<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Revolving or non-revolving lines of credit<\/span><\/li>\n<li>Startup business line of credit<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Short-term or medium-term lines of credit<\/span><\/li>\n<\/ul>\n\n<p><span style=\"font-weight: 400;\">Qualifications for a <\/span><a href=\"https:\/\/www.become.co\/blog\/business-line-of-credit-what-is-it-how-to-apply\/\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400;\">business line of credit<\/span><\/a><span style=\"font-weight: 400;\"> vary quite a bit between different loan providers. Some lenders offer lines of credit with terms as short as 3 months, and others as long as 5 years; some will provide credit limits as low as a few thousand dollars, and others upwards of $100,000.<\/span><\/p>\n\n<p><span style=\"font-weight: 400;\">Typically a line of credit loan is revolving, meaning that as funds are withdrawn and repaid, the credit line replenishes so that the funds can continuously be withdrawn and paid back. The biggest advantage that this offers to borrowers is the ability to use the funds if they need to, and lose nothing if the credit line isn\u2019t used. A business line of credit is an ideal backup plan for expenses that pop up unexpectedly and need to be handled quickly.<\/span><\/p>\n\n<p><span style=\"font-weight: 400;\">Ultimately, lenders will offer better terms to businesses that they determine are a lower risk. In other words, businesses that have better credit scores, credit histories, and have been in business longer will typically get better offers.<\/span><\/p>\n\n<h2><span style=\"font-weight: 400;\">What is a term loan?<\/span><\/h2>\n\n<p><span style=\"font-weight: 400;\">A term loan is a form of funding that lenders provide to borrowers as a lump-sum of money. Business term loans go by many different names, including (but not limited to):<\/span><\/p>\n\n<ul>\n<li style=\"font-weight: 400;\"><a href=\"https:\/\/www.become.co\/sba-loans\/\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400;\">SBA loans<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\"><a href=\"https:\/\/www.become.co\/business-equipment-loans\/\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400;\">Equipment financing<\/span><\/a><\/li>\n<li>Long term business loans<\/li>\n<li style=\"font-weight: 400;\"><a href=\"https:\/\/www.become.co\/unsecured-business-loans\/\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400;\">Unsecured business loans<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\"><a href=\"https:\/\/www.become.co\/blog\/unpaid-invoices\/\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400;\">Invoice factoring<\/span><\/a><\/li>\n<\/ul>\n\n<p><span style=\"font-weight: 400;\">There are differences in the qualifications for term loans as well, depending on both the lender and the borrower. As the name suggests, term loans are limited to a specific period of time. They&#8217;re not necessarily long term business loans; term loans through Become can range from 3 months up to 10 years, with amounts as low as $500 and as high as $500,000.<\/span><\/p>\n\n<p><span style=\"font-weight: 400;\">As opposed to a line of credit loan which allows borrowers to withdraw funds when they want or need to, short term or long term business loans provide all of the funds to the borrower in one lump-sum. This can be advantageous if the purpose of the loan is to make a long-term investment. But on the flip side, it means that if for some reason not all of the funds are used, then the borrower is stuck accumulating debt on money that isn\u2019t generating any profit.<\/span><\/p>\n\n<p><span style=\"font-weight: 400;\">While a line of credit loan is flexible and can be used as a backup plan for quick funds, a business term loan is generally recommended to be used with a specific goal in mind that can only get done with those funds.<\/span><\/p>\n\n<h2><span style=\"font-weight: 400;\">Who is a line of credit best for? <\/span><\/h2>\n\n<p><span style=\"font-weight: 400;\">A line of credit offers a great deal of flexibility to borrowers compared to other types of <\/span><a href=\"https:\/\/www.become.co\/business-loans\/\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400;\">business loans<\/span><\/a><span style=\"font-weight: 400;\">, which in turn means that businesses in all different industries, of all different ages, and even those with poor credit scores can be candidates. Startup business line of credit? No problem! To reiterate, because the funds provided in a line of credit don\u2019t have to be used, it\u2019s a fantastic form of flexible funding for any business to have on the backburner.<\/span><\/p>\n\n<h3><span style=\"font-weight: 400;\">Situations when you\u2019d use a line of credit<\/span><\/h3>\n<p><span style=\"font-weight: 400;\">There are countless situations where a line of credit would be useful. Generally speaking though, the funds available in a line of credit shouldn\u2019t be used all at once. That\u2019s a fast way to get into an unhealthy amount of debt and also severely limits the flexibility offered by lines of credit &#8211; which is the whole point of taking one in the first place! If your goal is to use a large sum of money all at once, you\u2019re better off applying for a term loan.<\/span><\/p>\n\n<p><b>A few ways to use a line of credit:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Paying employees<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Small repairs around the place of business<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Renovations<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Cover unpredictable expenses involved in large projects<\/span><\/li>\n<\/ul>\n\n<p><span style=\"font-weight: 400;\">Any situation where expenses arise unexpectedly, cash flow is limited, or a short-term investment opportunity present itself &#8211; a business line of credit can come to the rescue.<\/span><\/p>\n\n<p style=\"text-align: center;\" data-tadv-p=\"keep\"><span style=\"font-weight: 400;\"><strong><a class=\"btn btn-lg btn-success\" href=\"https:\/\/www.become.co\/business-line-of-credit\/\" target=\"_blank\" rel=\"noopener noreferrer\">APPLY FOR LINE OF CREDIT<\/a><\/strong><\/span><\/p>\n\n<p><img decoding=\"async\" class=\" wp-image-5980 aligncenter\" src=\"https:\/\/www.become.co\/blog\/wp-content\/uploads\/2019\/04\/iStock-1126970042-1-300x183.jpg\" alt=\"Startup business line of credit\" width=\"751\" height=\"458\" srcset=\"https:\/\/www.become.co\/blog\/wp-content\/uploads\/2019\/04\/iStock-1126970042-1-300x183.jpg 300w, https:\/\/www.become.co\/blog\/wp-content\/uploads\/2019\/04\/iStock-1126970042-1-1200x734.jpg 1200w, https:\/\/www.become.co\/blog\/wp-content\/uploads\/2019\/04\/iStock-1126970042-1-442x270.jpg 442w, https:\/\/www.become.co\/blog\/wp-content\/uploads\/2019\/04\/iStock-1126970042-1.jpg 1024w\" sizes=\"(max-width: 751px) 100vw, 751px\" \/><\/p>\n\n<h2><span style=\"font-weight: 400;\">Who is a term loan best for?<\/span><\/h2>\n\n<p><span style=\"font-weight: 400;\">Term loans are best for businesses that have a precise purpose for taking out a lump-sum of money. While there is certainly a great deal of companies that would be jumping for joy at the opportunity to obtain a large amount of funding all at once, the qualifications are normally stricter for term loans than for lines of credit.<\/span><\/p>\n\n<p><span style=\"font-weight: 400;\">In other words, businesses that have been operating for relatively longer (a number of years) and those that have stronger credit scores are the most likely to be approved.<\/span><\/p>\n\n<blockquote>\n<p><a href=\"https:\/\/www.become.co\/apply\/\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400;\">Become<\/span><\/a><span style=\"font-weight: 400;\"> is dedicated to making it easier for small-to-medium sized businesses to get funded. Even if your company hasn\u2019t been around for so long, or has a less-than-perfect credit score, you\u2019ll receive tailored guidance on how to improve your business\u2019s fundability.<\/span><\/p>\n<\/blockquote>\n\n<h3><span style=\"font-weight: 400;\">Situations when you\u2019d use a line of credit<\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Since business term loans provide the entire amount of financing all at once, it\u2019s normally the case that the borrower uses the funds predominantly for an individual long-term investment. Within those parameters, the situations when a business would use a term loan can vary greatly.<\/span><\/p>\n\n<p><b>A few ways to use a term loan:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Hiring new employees<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Building a brick-and-mortar headquarters<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Purchasing equipment<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Buying a web domain\/building a website<\/span><\/li>\n<\/ul>\n\n<p><span style=\"font-weight: 400;\">When business owners want to take their companies to the next level and the costs are beyond their budget, a term loan is one of the best ways to tackle larger tasks which ultimately help the business grow.<\/span><\/p>\n\n<p style=\"text-align: center;\" data-tadv-p=\"keep\"><span style=\"font-weight: 400;\"><strong><a class=\"btn btn-lg btn-success\" href=\"https:\/\/www.become.co\/business-loans\/\" target=\"_blank\" rel=\"noopener noreferrer\">BROWSE OTHER TERM LOANS<\/a><\/strong><\/span><\/p>\n\n<h2><span style=\"font-weight: 400;\">Term loan vs line of credit: which is best for your business?<\/span><\/h2>\n\n<p><span style=\"font-weight: 400;\">When attempting to determine whether the best funding solution is a term loan or a line of credit, there isn\u2019t a one-size-fits-all answer. A myriad of factors come into play, including the:<\/span><\/p>\n\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Intended use for the funds<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Applicant\u2019s credit score<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Business age<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Existing debt<\/span><\/li>\n<\/ul>\n\n<p style=\"text-align: center;\" data-tadv-p=\"keep\"><b>\u00a0Term Loan Vs Line of Credit: Breakdown<\/b><\/p>\n<div style=\"overflow-x: auto; text-align: center;\">\n<table class=\"aligncenter\" style=\"height: 296px; width: 643px; border-collapse: collapse; border-spacing: 0px; border-color: #aabcfe; table-layout: fixed;\" border=\"1px solid rgb(255, 255, 255)\" cellspacing=\"0px\" cellpadding=\"10px 5px\"><colgroup> <col style=\"width: 195px;\" \/> <col style=\"width: 216px;\" \/> <col style=\"width: 231px;\" \/><\/colgroup>\n<tbody>\n<tr>\n<th style=\"font-family: Arial, sans-serif; font-size: 16px; font-weight: bold; padding: 10px 5px; overflow: hidden; word-break: normal; color: #ffffff; background-color: #113e59; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 195px;\">Variable<\/th>\n<th style=\"font-family: Arial, sans-serif; font-size: 16px; font-weight: bold; padding: 10px 5px; overflow: hidden; word-break: normal; color: #ffffff; background-color: #113e59; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 216px;\">Business Line of Credit<\/th>\n<th style=\"font-family: Arial, sans-serif; font-size: 16px; font-weight: bold; padding: 10px 5px; overflow: hidden; word-break: normal; color: #ffffff; background-color: #113e59; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 231px;\">Traditional \u2018Term\u2019 Loans<\/th>\n<\/tr>\n<tr>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #000000; background-color: #ffffff; font-weight: bold; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 195px;\">Interest rate<\/td>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #90b586; background-color: #ffffff; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 216px;\">Tied to the market\u2019s variable<br \/>rate &#8211; typically lower<\/td>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #000000; background-color: #ffffff; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 231px;\">Fixed rates &#8211; typically higher<\/td>\n<\/tr>\n<tr>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #000000; background-color: #e6edf1; font-weight: bold; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 195px;\">Closing cost<\/td>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #90b586; background-color: #e6edf1; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 216px;\">Typically lower<\/td>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #000000; background-color: #e6edf1; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 231px;\">Typically higher<\/td>\n<\/tr>\n<tr>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #000000; background-color: #ffffff; font-weight: bold; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 195px;\">Payment structure<\/td>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #90b586; background-color: #ffffff; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 216px;\">Varies month-to-month<\/td>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #000000; background-color: #ffffff; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 231px;\">Set amounts due each month<\/td>\n<\/tr>\n<tr>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #000000; background-color: #e6edf1; font-weight: bold; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 195px;\">Flexibility<\/td>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #90b586; background-color: #e6edf1; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 216px;\">High<\/td>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #000000; background-color: #e6edf1; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 231px;\">Rigid<\/td>\n<\/tr>\n<tr>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #000000; background-color: #ffffff; font-weight: bold; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 195px;\">Best for<\/td>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #90b586; background-color: #ffffff; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 216px;\">Short-term needs<\/td>\n<td style=\"font-family: Arial, sans-serif; font-size: 16px; padding: 10px 5px; overflow: hidden; word-break: normal; color: #000000; background-color: #ffffff; text-align: center; vertical-align: top; border: 1px solid #ffffff; width: 231px;\">Long-term needs<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p style=\"text-align: center;\" data-tadv-p=\"keep\">\u00a0<\/p>\n<p style=\"text-align: left;\" data-tadv-p=\"keep\"><span style=\"font-weight: 400;\">If a simple answer had to be given, then a line of credit loan is an appropriate funding solution for virtually any and every business. Since the funds are available on an as-needed basis and there\u2019s no penalty for not using the credit line, every business should consider taking a business line of credit to have at hand in case of emergency.<\/span><\/p>\n\n<p><span style=\"font-weight: 400;\">On the other hand, term loans are an appropriate funding solution for businesses that not only know how they intend on using the funds but also need the funds in order to reach that intended goal. If your business has a difficult time obtaining a term loan, you should apply for a line of credit which can then be used to improve your financial factors &#8211; that will subsequently improve your chances of getting approved for a term loan.<\/span><\/p>\n\n<p style=\"text-align: center;\" data-tadv-p=\"keep\"><span style=\"font-weight: 400;\"><strong><a class=\"btn btn-lg btn-success\" href=\"https:\/\/www.become.co\/apply\/\" target=\"_blank\" rel=\"noopener noreferrer\">SEE IF I QUALIFY<\/a><\/strong><\/span><\/p>\n\n<h2><span style=\"font-weight: 400;\">And the winner is\u2026<\/span><\/h2>\n\n<p><span style=\"font-weight: 400;\">You! Whether it\u2019s a line of credit or a term loan, the solutions are at your disposal. And, if for whatever reason you find your business is unable to qualify for either sort of funding, Become will provide you with tailored guidance on how to get qualified. With advanced algorithms and dozens of lenders for businesses to potentially match with, Become works round-the-clock to help small-to-medium businesses get funded the smart way.<\/span><\/p>\n\n<p><span style=\"font-weight: 400;\">We hope you find the information in this guide helpful when considering a line of credit vs loan. If you feel that there were any questions which were left unanswered, please feel free to leave a comment. Good luck!<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>You\u2019ve begun looking into business financing, and have come to a fork in the road: line of credit vs loan. They\u2019re two very different types of funding solutions, and their distinctive features will naturally raise some important questions. What are they? What\u2019s the difference? Which is a better fit for your business profile and needs? [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":5985,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[13,79,1,12],"tags":[223],"class_list":["post-5976","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-aus-resources","category-business-guides","category-uncategorized","category-us-resources","tag-fast-funding"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Line of Credit vs Loan: What&#039;s the Difference? - Business Funding Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.become.co\/blog\/line-of-credit-vs-loan\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Line of Credit vs Loan: What&#039;s the Difference? - Business Funding Blog\" \/>\n<meta property=\"og:description\" content=\"You\u2019ve begun looking into business financing, and have come to a fork in the road: line of credit vs loan. They\u2019re two very different types of funding solutions, and their distinctive features will naturally raise some important questions. What are they? What\u2019s the difference? Which is a better fit for your business profile and needs? 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