Business Line of Credit vs. Business Loan

In today’s discussion we will be comparing two distinct mechanisms to pay for your business expenses; the business line of credit and the business loan. In general a line of credit is useful for day to day operating expenses, it can be used to supplement petty cash and can be very useful for companies that are growing rapidly or that have extremely varied monthly expenses. Business loans come in many verities with different purposes. We will discuss these two options in more detail below.

First we will give an outline of a business line of credit and how it works. A line of credit for your company works very much like a personal credit card does. Instead of being disbursed an amount of money one time like a loan, you instead are authorized to spend a certain amount on the account. Typically you can access this money as a cash advance or through a charge card of some kind. Lines of credit have higher interest than secured bank loans, but much lower credit than a cash advance, so it never hurts to have one available.

Your line of credit can be a great tool in dealing with your day to day expenses. Typically there will be a delay effect between when you render services and when you are paid for them. If you have customers who are taking a long time to pay you, or if you are growing quickly enough that your current net expenses are not covered by last month’s payments (remember the delay) than a line of credit can be very helpful to pay for these short term spikes in your expenses. Best practice is to run your balance down to zero each month, or at least as soon as you have been paid by your customers.

Business loans on the other hand are paid out one time only. Loans come in different varieties ranging from a business cash advance to a secured bank loan. A business advance (which functions very much like a personal advance) has very high interest, a short repayment period and is limited in the amount you can borrow. On the other end of the spectrum a secured bank loan for a major purchase, like property, has a very low interest rate, takes long to get approved, and can be very large.

So in short, a business line of credit is available funds to be used over and over and business loans are all one time payments. Your circumstances will drive which option works best for you.

For more information, go to business line of credit at

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One Response to Business Line of Credit vs. Business Loan

  1. Tisha says:

    Kudos to you! I hadn’t tuhoght of that!