So, you have decided that business purpose loans are what you are after, but, you aren’t clear on the difference between choosing a line of credit or a term loan or which option is best.
If you are like most people seeking business purpose loans, you’ve more than likely come across dozens of lengthy and complicated applications or required forms. On the rare occasion, you may have come across a straightforward application and let out a sigh of relief. Maybe, next, you happily grab your pen to fill in the blanks or began clicking on the appropriate boxes on your computer till suddenly you realize that you are halfway through one of the most straightforward application for business purpose loans you had ever seen.
But, more than likely just as you believed that you could fill out this particular application without any obstacles or feelings of anxiety, you came across the loan request information section. There in that section, you were innocently asked to fill out your primary purpose (working capital, purchase inventory or equipment or real estate, debt restructuring, accounts receivables, improvement or other) –no biggie. But, then suddenly almost out of nowhere or just right next to the primary purpose boxes, you see it—loan type requested, check the appropriate box for a line of credit or a term loan.
At first, you may have wanted to clearly check the term loan box; after all, it is all you’ve known when it comes to loans. But, maybe you liked the way “line of credit” sounded in your head. Well, snap out of it. This is your business, though, you do not have the luxury to kid around or make decisions based solely on the way the sound. So, what can you do? Well, first stop filling out the application i.e. put the pen down or stop typing if you haven’t already and let’s go over whether you are in the market for a line of credit or a term loan.
How to evaluate your Loan Type
The best way to evaluate which loan type is right for your business is to first and foremost understand what these terms truly mean. A line of credit, in regards to these particular kinds of loans, is very much still like any other line of credit. This means you have access to a specific amount of business-use only financing. It also means that you are not required to make any payments or deal with those pesky interest rates until you actually use the funds—think of it like a credit card. Term loans, on the other hand, means lump sum financing that you pay back over agreed upon period of time (amortization period).
So who do you choose? Well, term loans are best if you are talking about specific long-term investments like making improvements or buying equipment. A Line of credit is more about having access to financing when you need it the most i.e. think short-term here. With that being said, mull it over some more, do your research and think about your priorities then you can check your appropriate box.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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