Every business needs cash to operate and thrive. But what kinds of financial solutions are available as funds become needed? The two most frequently used types are term loans and lines of credit.
What Are Term Loans?
Term loans are often called “traditional business loans” and they are acquired through banks or credit unions. In a term loan, the borrower receives a lump sum that is paid back to the loaning institution over a set time period and at a defined interest rate. Interest begins accruing from day one of the loans on the full loan amount regardless of when the funds are used. Term loans are usually used to finance a specific one-time business investment such as taking advantage of a new opportunity, buying new equipment, purchasing a new location or property, or buying additional inventory.
What Are Lines of Credit?
Securing a line of credit means acquiring a “pool” of funds that can be used at any time; essentially a “revolving loan.” Lines of credit are established with a set limit and repayment period. Funds are used whenever they are needed for any purpose and the set interest rate is applied to the used funds. Funds up to the set limit are available to be used, repaid, and replenished in a repeating cycle. Lines of credit typically have less stringent requirements versus term loans. They can be applied-for before they are needed, thus providing an excellent cushion.
What Can Lines of Credit Be Used For?
Lines of Credit can be used for:
- Seasonal sales or expense fluctuations.
- Fluctuations in working capital due to slow payment of accounts receivables.
- Buying inventory to prepare for a busy season.
- Launching a new or expanded marketing campaign.
- Expanding a physical location.
- Seizing new business opportunities.
Seek Expert Financial Assistance
Contact Star Capital USA, based in Greenwood, IN. We say “Yes” to the unique needs of small businesses by offering an extensive portfolio of commercial finance products designed to provide the essential funding to fuel your enterprise’s growth.