When times are tough, and you need help to meet your needs, various financing options exist. You can get a business or equipment loan or open a line of credit. Lines of credit work differently than a business loan, and it offers benefits that a business loan will not provide. Here is a look at lines of credit and its advantages over other financing options.

Revolving Credit

With a business loan, you are given a lump sum and then expected to pay it back on an agreed-upon schedule, typically monthly. Once you have used the loan, you do not get more money. The opposite is true with a line of credit. This option gives you a maximum limit, which you use when necessary. For example, say your limit is $10,000. That money is sitting there, and you owe nothing. Then, you must purchase something for $8,500. You would then have $1,500 available but would only make payments on the money you borrowed. As you make the payments, you free up more credit and can make other purchases as needed.

Most of the time, you can make monthly payments, but if you can, it is often ideal to pay it back in one lump sum, as that helps with the interest rate and frees up all that credit for you to use again.

Benefits Over Other Options

As mentioned above, business loans are a one-time thing. You are given a lump sum and then pay it back over time. Once you have spent the money that came with your loan, you do not get any more without applying for another loan. This can lead to overwhelming debt and more loans than you know what to do with.

A term loan is another option businesses can consider when looking for financing. However, this loan can put a lot of pressure on you, as the entire balance is due after an agreed-upon time. This can be stressful if you are less successful than you thought you would be in your business endeavors or if an unexpected expense has come up.

While this sounds like a credit card, the interest rates are much lower than you’d pay on a credit card, especially if you have good credit. This means you are paying a substantially lower amount in the long run.

As you can see, lines of credit can be a good option for businesses seeking financing. Whether for something big or small, having a line of credit is an option that makes sense financially and for convenience.