Lending & Finance

 

04 17 2017

small business loan line of credit

04 17 2017

What’s the Difference Between a Small Business Loan and A Line of Credit?

Small business loans and lines of credit have some important similarities. They both offer businesses the opportunity to leverage existing assets in exchange for liquid capital, to be spent on a variety of relevant operational needs. However, there are some important differences between small business loans and lines of credit. Let’s review these two useful financial tools for organizations and highlight their differences.

Small business loans

A small business loan is, in general terms, a fixed amount of money provided by a financial institution to a new or growing enterprise. The allowed uses of the money are broad, and can apply to nearly any aspect of operations. The concept behind a small business loan is simple. A business owner requests the loan and, if approved, is generally given the entire amount requested. Then, the money is paid back over time, usually with a monthly debit.

Small business loans may seem hard to get, but alternative lenders such as National Funding make it easy to get approved. Our requirements are simple and already met by many companies: One year of continuous operation, $100,000 in yearly sales and sharing three months of bank statements. Consider these common reasons for requesting a small business loan:

Expansion efforts

Whether new or old, many small companies eventually want to increase their presence. A common problem involves business owners who do their research and know their markets , understanding expansion would lead to higher revenue and other favorable outcomes, but lack the funding needed to grow.

A small business loan addresses this issue, giving an infusion of cash that makes moving to a new facility or extensive purchasing of new equipment a reality. It can also address needs like an increased payroll, something that may be required for expansion but won’t see an immediate return on investment. This boost in available funds can mean the difference between a developing small organization and a stagnant one.

Addressing large and unexpected financial obligations

Constantly and effectively managing cash flow is a difficult proposition for many small enterprises. Because cash flow is a distinct concept that is related to but stands apart from revenue and profit considerations, it presents its own unique brand of problems. Your business may perform very strongly month after month, but the timing of tax bills, payments to vendors and other considerations can fall close together and create problematic cash shortages.

With a small business loan, you can avoid the crunch that lots of bills and other obligations create for your available, short-term cash reserves. The loan allows you to address these urgent requirements for payment, while your long-term revenue will help pay it back in a more manageable and predictable way.

Improving performance

You might not want to grow your business as a primary goal, instead focusing more on improving efficiency, effectiveness or other results mostly within your current framework. Whether it means replacing existing equipment, giving the customer-facing areas of your facility an upgrade or something else entirely, improving an area of operations is eventually a need for all businesses.

In this case, a small business loan allows your organization to address the exceptional price tag frequently associated with making improvements, paying back the debt owed over time.

Line of credit

Loans are common in people’s business and personal lives, but lines of credit are even more widely used. If you’ve ever had a credit card in your own name or that of your company, you’ve used a line of credit. A line of credit is significantly different from a loan because of the revolving nature of credit. While a loan usually involves a single, defined amount of money, credit can be replenished up to the credit limit through payments from your company.

As long as you continue to make the minimum payment on time, your business has access to the available amount of credit – which changes based on use and repayment patterns, but generally stays at a fixed limit. Over months and years, credit proves itself to be significantly different from a loan. Loans generally have a fixed term, while lines of credit can be used as long as minimum payment requirements are met and a business desires to continue their use.

Because a line of credit continues to exist, and the credit limit is often lower than the amount provided by a small business loan, its application is sometimes different than a loan. It can be used for the same needs that a loan addresses, but in a more limited way due to the frequently lower limit of funds. Lines of credit can also be used for smaller and more regular expenses and to smooth over continuing issues with cash flow.

Both small business loans and lines of credit have important applications in the world of business. Understanding the differences between them helps your company make the best possible decision for its future.

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Terms & Conditions

General Acceptance

Any applications submitted electronically shall have the same force and effect as if the application bore an inked original signature(s). The above information, together with any accompanying financial statements, schedules, or other materials, is submitted for the purpose of obtaining credit and is warranted to be true, correct, and complete.

 

US Patriot Act:

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person and business that seeks a business loan. What this means for you: When you apply for a loan, we will ask for your business name, address, and Tax Identification Number. We will also ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

 

For Loan/Merchant Services:

The Merchant and Owner(s)/Officer(s) identified in the application (individually, an “Applicant”) each represents, acknowledges and agrees that (1) all information and documents provided to National Funding, Inc. (“NF”) including credit card processor statements are true, accurate and complete, (2) Applicant will immediately notify NF of any change in such information or financial condition, (3) Applicant authorizes NF to disclose all information and documents that NF may obtain including credit reports to other persons or entities (collectively, “Assignees”) that may be involved with or acquire commercial loans having daily repayment features and/or Merchant Cash Advance transactions, including without limitation the application therefor (collectively, “Transactions”) and each Assignee is authorized to use such information and documents, and share such information and documents with other Assignees, in connection with potential Transactions, (4) each Assignee will rely upon the accuracy and completeness of such information and documents, (5) NF, Assignees, and each of their representatives, successors, assigns and designees (collectively, “Recipients”) are authorized to request and receive any investigative reports, credit reports, statements from creditors or financial institutions, verification of information, or any other information that a Recipient deems necessary, (6) Applicant waives and releases any claims against Recipients and any information-providers arising from any act or omission relating to the requesting, receiving or release of information, and (7) each Owner/Officer represents that he or she is authorized to sign this form on behalf of Merchant.(8) I consent to receive direct mail, faxes, text-messages, and e-mails sent by National Funding and its affiliates for the purposes of transmitting account updates, requests for information and notices, and (9) this request is for business and not for consumer purposes.

 

For Equipment Services:

I hereby certify: (1) the information provided is true and correct, (2) you are hereby authorized to investigate all bank, credit, and trade references, and said references are hereby authorized to release any requested information to you or your nominee, (3) such authorization shall extend to obtaining personal credit profile in considering this application and subsequently for the purposes of update, renewal or extension of such credit or additional credit and for reviewing or collecting the resulting account, (4) this information may be transmitted by us to you and by you to underwriter(s) for the purpose of granting me credit, either electronically or manually, and that by submitting this application, I take full responsibility for transmission thereof, (5) I am over 18 years of age, (6) I acknowledge my rights under the Fair Credit Reporting Act, (7) I consent to receive direct mail, faxes, text-messages, and e-mails sent by National Funding and its affiliates for the purposes of transmitting account updates, requests for information and notices, and (8) this request is for business and not for consumer purposes.

 

Text Messaging:

By providing my wireless phone number to National Funding, Inc., I agree and acknowledge that National Funding, Inc. may send text and multimedia messages to my wireless phone number for any purpose. I agree that these text or multimedia messages may be regarding the products and/or services that I have previously purchased and products and/or services that National Funding, Inc. may market to me. I acknowledge that this consent may be removed at my request but that until such consent is revoked, I may receive text or multimedia messages from National Funding, Inc to my wireless phone number.

  
The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status or age (provided the applicant has the capacity to enter into the binding contract); because all or part of the applicant’s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. If for any reason your application for business credit is denied, you have the right to a written statement of the specific reasons for the denial. To obtain the statement, please write to National Funding Inc., 9820 Towne Centre Drive, San Diego, California 92121. Funding amount and credit approval is subject to a full credit profile review.