Differences between Business Loan and Business Line of Credit

A business loan and a business line of credit have many similarities: both have similar requirements, both are ways to fund your business, and both are often by a variety of banks and alternative lenders.

Business Loan

Fixed term loans, SBA loans, asset-based lending - these are all examples of different types of business loans. A term loan is the common structure of most business loans. A term loan is when you receive a lump sum that has a specific repayment schedule with either a fixed or floating interest rate.

Term loans can have varying loan amounts, ranging from $500 to $5 million dollars.

The repayment terms also vary:

Short term loans - Usually within a year

Intermediate term loans: 1 to 3 years

Long term loans - 3 to 25 years

Businesses will need to fulfill a lot of requirements to be considered for most loans. Aside from the extensive financial documents, you will need to have a detailed business financial plan.

Usually a minimum credit score of 680, at least 3 years of being in business, and $300,000+ in revenue is a good benchmark to qualify for most business loans. The less risky your business appears, the more favorable your loan terms and conditions will be.

Business Line of Credit

A business line of credit is a flexible financing method that gives you a certain amount of cash and you choose how much money to withdraw. You only need to pay interest on the amount withdrawn. A revolving line of credit, in particular, will refresh the original total once you pay back the amount withdrawn.

The total amount of a business line of credit can range from $1,000 to above $500,000. The repayment term lengths will also depend on your agreement with your lender, ranging from 6 months to several years.

The minimum qualifications for most lines of credit will be being in business for at least 6 months and $25,000 in annual revenue. A minimum credit score will vary by lender, usually within 500 - 630. The higher the credit limit is for your business line of credit, the more likely it will be for lenders to require collateral, which can be your company’s assets or a personal guarantee.

While lines of credit are useful for short-term expenses, businesses can also use a line of credit to deal with emergencies or unexpected situations quickly. Rather than a one-time short-term issue which is best suited for a term loan, business lines of credit also cover ongoing operating expenses.

Why Use a Business Loan?

• Better for one-time or specific purchases

• You prefer having a set repayment schedule with a fixed or floating rate

• You need a large amount of cash

• If your business has favorable qualifications, it can be easy to qualify and obtain better business loan terms and conditions

Why Use a Business Line of Credit?

• Usually easier to qualify for a business line of credit over a business loan

• Usually has a quicker qualification process, which means faster funding

• You only need to pay back the amount drawn, which makes it ideal for smaller purchases

• By drawing smaller amounts, it is possible to bolster your credit score by reliably paying back the line of credit

• Business lines of credit have no restrictions on their usage

• A business line of credit initially has a lower interest rate and you are confident you can repay

Accel Business Funding has many different funding options for all businesses and funded many businesses for more than $380 million. When banks say NO, we say YES to funding in 24 hours!