Major Differences Between Line of Credit Loan & Standard Loan

Line of Credit Loan

When you are thinking of starting your own business, you definitely need to have idea about the various kinds of Small Business Loans available. This will give you in-depth knowledge of the business finance and make the right decisions in terms of financial growth and debt. Well, from the different types, the two common types are lines of credit and standard term loans.

Being a small business owner, you need to know about the differences between the two financial options. You need to understand the purpose of loan, the things to take into consideration while choosing, how the finance will be used and much more.

  • Standard Term Loan:

This is the type of loan used by most of the people for purchasing a major asset to a property or a car. With this, the total cash is loaned to borrower during loan closing. It is then paid back usually regularly, monthly or equally. These are generally fixed-rate loans.

  • Line of Credit:

This is not like outright loan that comes as an agreement between the bank and the business owner about maximum credit a bank can extend without any collateral. However, it is more similar to credit card. For an instance, if a business owner opts for line of credit to $25, 000, it is similar to obtaining credit card that has a limit if $25, 000.   The owner can get cash upto $25, 000 or the set limit.

Prime Differences:

  • Payment terms: The primary difference between lines of credit and term loans is payment schedule or amount. Most of the loans have a fixed monthly payment which has both interest and principle with it along with loan is available for a period of time. When borrowed via line of credit, the payment will vary each month which depends on the available credit accessed by the borrower.
  • Processing Fees: Here are different fees related to loans that include credit check fee, processing fee along with appraisal fee. Line of credit generally include credit fee, processing fee along with an amount is charged every time borrowers draw additional charge against the credit. This is the reason why borrowers need to take into account the financing needs in order to draw less frequently and keeping the fees minimum. However, closing costs for loan is much higher than line of credit.
  • Draw Schedule: With small business loan, it can be issued as soon as the loan documents are completed. All loans proceed can be issued and business owners will never get any additional proceeds. With the business line of credit, they take out line same to credit card that will give an opportunity to draw required mount.

Well, different financial options have different set of advantages and disadvantages. All you need is to check in details about each of them in order to comprehend the best choice for your business. Standard term loans are great when it is about long term needs while line of credit fits best with short-term expenses. Talk to an expert, fill in Small Business Online Application form and you are all set to fulfill your business funding needs.

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