Line of Credit vs. Term Loans: Choosing the Right Loan for Your Business

Line of Credit vs. Term Loans: Choosing the Right Loan for Your Business

When it’s time to look into financing for your business, there are many options to choose from to fit your needs. Two popular options for businesses today include a revolving line of credit and a term loan. While they seem similar, they have a few key differences, so we’ll break it down for you.

What is a revolving line of credit?

A type of financing you can get from your local bank, a revolving line of credit allows you to borrow a predetermined amount, however, they tend to come with higher credit limits, making it a better alternative for when you need cash for larger purchases. It’s also different from a business loan in that you can access cash whenever you need it or as expenses come up. It’s important to note that lines of credit come with draw periods where you can access the line as often as you like. During the draw period, your minimum monthly payments only account for the interest you need to pay. Once the draw period ends, your bank sets up an installment repayment plan typically set over three to five years.

What is a term loan?

A term loan is a one-time loan from a bank for a specific amount that has a specified repayment schedule, at either a fixed or floating interest rate. Term loans can be used for a variety of business purchases, from new equipment and vehicles, expanding to a new location or making improvements to an existing rental or commercial property. They’re a great option for both short- and long-term financing needs. Once you’re approved for a business term loan from your bank, you must agree to the rates and repayment terms, which can typically range from three to 10 years.

Which one is right for your business?

Both a revolving line of credit and a term loan are excellent financing options for your business that serve different needs, so you may even utilize both at some point while running your business. A term loan is best when intending to take out one large lump sum to pay for a single purchase or goal, while a revolving line of credit doesn’t have to be used right away – you can use it as an emergency fund or save it for the slower seasons as needed.

Interested in a revolving line of credit or a term loan? Union Savings Bank offers both to local businesses in Western Connecticut. Not only do we offer a variety of loans at competitive rates, but we’ll work with you one-on-one to build a customized solution based on your individual business needs. And if you qualify, we can process your loan request quickly.

Call us at 866.650.0720 or visit one of our branches.