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Whether you’re managing cash flow, investing in growth or preparing for the unexpected, the type of credit you choose can either support – or strain – your business.
Key Takeaways
When it comes to business financing, you typically have two options:
Equity financing
Requires you to give up a portion of your business control and future profits.
Debt financing
Must be repaid but leaves you fully in command of your business’s future.
Business loans and business lines of credit are the most common debt financing options. While both provide access to capital, they’re designed for different purposes.
Understanding how they work – and when to use each – can help you borrow more confidently and avoid costly mistakes.
A business term loan provides a lump sum of capital upfront that you repay over a fixed period – often several years – with scheduled monthly payments. Interest rates may be fixed or variable, but the repayment structure is predictable.
Business loans are ideal for:
A term loan finances growth and is well suited for investments with a clear return and timeline.
A business line of credit is sort of like a credit card. Instead of receiving a lump sum, you’re approved for a maximum credit limit that you can draw from as needed. You only pay interest on the amount you use, and as you repay what you borrow, those funds become available again.
Lines of credit are ideal for:
A line of credit helps stabilize operations and preserve liquidity by protecting cash flow and flexibility.
Many businesses use both – a term loan for investments and a line of credit to manage day-to-day operations.
Need a business loan? Use our handy calculator to estimate your monthly payment.
Calculate PaymentAnother option is financing backed by the Small Business Administration (SBA), which can offer longer repayment terms, lower down payments and competitive interest rates.
The SBA, which sets the terms and requirements, partners with lenders to offer loans from $500 to $5.5 million that can be used for working capital and long-term fixed assets.
To qualify, businesses must be:
Learn more about SBA loans at sba.gov.
In evaluating your application, lenders will want to understand:
For term loans: Lenders often focus on the value of the asset being financed and your business’s long-term stability.
For lines of credit: Cash flow is especially important, since repayment depends on ongoing operations.
To strengthen your application, make sure to have clear financial statements, a defined use of proceeds and a realistic repayment plan. The documents you may need include:
You’ll also want to be sure your credit score is in top shape. If your business hasn’t been operating long, lenders will also look at your personal score.
Bottom line: Both options can move your business forward, if used correctly. Choose a term loan for one-time growth costs and a line of credit for ongoing cash-flow needs.
To learn more, stop by in person or connect with a banker online. We can help you evaluate your goals, cash flow and risk tolerance to figure out which option best supports your business today and into the future.
You’ve worked hard to build your business into what it is today, and you’re always thinking about what’s ahead. From new equipment to expanding operations, we’re here to help your business grow.
Payroll. Inventory. Maintenance. Whatever your short-term expenses may be, breathe easy with access to fast, flexible funds.
Interested in growing your venture with financing? You’re in the right place! Learn some helpful tips on how you can go about securing the right business loan.
