Line of Credit or Term Loan

This topic contains 1 reply, has 2 voices, and was last updated by  Paul Long 4 months, 1 week ago.

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  • #2213 Reply

    Sara Nordlolm

    What is easier for my business to get, a Line of Credit or a term loan?

    #2214 Reply

    Paul Long
    Keymaster

    Hi Sara,

    That is such a good question to start off this forum. Many people believe that a line of credit is easier to get than a term loan for your business. That is not always the case. Generally speaking, most banks that primarily work with business customers will do lines of credit for businesses that need it for working capital. For example, If you are a restaurant getting a LOC would be difficult because you get paid by the customer when you place the order so your cash cycle is short. If you are Trucking company for example you do the work, bill it and have to wait 30 days for payment, then this is where a LOC would be most useful because your cash cycle of long and you have bills and salaries to pay.

    Term Loans are actually easier to get because it is usually collateralized by what you are buying (Equipment, Vehicle etc) as long as you have some money to put down on the loan getting that is easier than a line of credit.

    In complete transparency there are Credit Unions and Banks that will give a LOC to a business with no or little collateral and do it primarily on the credit score of the owners. They are usually not more than $50,000 and the rates are higher. I see business owners get in trouble with these often because they are really using the LOC as a long term loan.

    See an article I wrote about this in 2017 here: http://paultlong.com/2017/10/want-line-credit-business-read-first/

    I hope that answered your question.
    Paul Long
    Trusted Business Lender for the South Sound.

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