Whether you own a large corporation or small business, understanding the differences between business loans and lines of credit is crucial. Margo’s Bookkeeping provides financial bookkeeping and payroll services, throughout the New York City Area. Below you can find the major differences between business loans and business lines of credit.
Terms: Business loans are generally applied for when you need it. When you receive a business loan, the terms includes a set interest rate and set amount of time. The terms on a business loan remain the same and normally range from 2 to 6 years. Monthly payments are also fixed and will remain the same throughout the term of your loan. The longer you’ve been in business, the better rates you may be eligible for.
Closing Costs/Fees: Typically the closing costs for loans tend to be higher than a business line of credit. Business loan fees include a processing fee, credit fee and appraisal fee if there’s collateral involved.
Interest Rates: Business loans tend to have higher interest rates that are fixed. The interest rate you receive on your loan is calculated using factors such as credit score, risk levels and amount of years you’ve been in business.
Business Lines of Credit
Terms: The terms of a business line of credit are more flexible and tend to have more options for amount of time required to repay the money. Business lines of credit requires you to only make payments on the amount you owe. If you have an open business line of credit you’re not required to borrow all of the money at once. For example if you open a line of credit for $50,000 and only need $25,000, that leaves you with the option of borrowing more at a later date.
Closing Costs/Fees: The closing costs are much smaller for lines of credit if there are any at all. The fees charged for lines of credit include transaction fees if you choose to withdraw from your line of credit.
Interest Rates: Interest rates for lines of credit usually are variable and will fluctuate depending on the current market rate. Business lines of credit also can incur penalty fees or increased interest rates if you make late payments or exceed your credit line. Lines of credit tend to produce better savings as long as your properly maintain your credit.
By undergoing a financial analysis and identifying how long you need to borrow money for, you can figure out which option better suits you. Margo’s Bookkeeping offers a full range of financial services, such as business accounting, real estate accounting and bookkeeping services, forensic financial auditing and payroll solutions.