Starting a venture and watching it grow is one of the most satisfying things ever. However, entrepreneurs are often forced to give up their dreams due to lack of funds. While some may opt for borrowing from relatives, others choose to take a loan for business or go for a line of credit.<\/p>\n\n\n\n
You’d often hear entrepreneurs talk about both being good options to finance business-related expenses, but how are they different from each other and which one should you opt for? The biggest reason why most business owners consider a line of credit is because business loan approvals aren\u2019t really easy. In reality, a business line of credit may have multiple benefits. Let\u2019s dive into the difference between a business loan and the line of credit:<\/p>\n\n\n\n Comparison Points <\/strong><\/td> Business Loan <\/strong><\/td> Line of Credit <\/strong><\/td><\/tr> \n When do you take it?\n <\/td> \n One of the prime differences\n between a business loan and a line of credit is the time of availing them. A\n business loan can either be taken before you start your business or midway.\n The fund thus availed is utilized for meeting business expenses.\n <\/td> \n Line of credit is taken before\n you start the business as it could be used for any purpose. \n <\/td><\/tr> \n Payment\n <\/td> \n Like any other loan, when you take\n a loan for business, you\u2019ll have to repay it. \n Additionally, loans are\n obtained for a fixed duration, so you would be, by default locked in.\n Considering that you\u2019re paying monthly for it regardless of the usage, the\n total cost of securing a business loan could be higher.\n <\/td> \n Payment on the line of credit\n is made only on the amount utilized. \n <\/td><\/tr> \n Rate of interest\n <\/td> \n Although the rate of interest\n on business loans is higher, it\u2019s fixed. So, you know the amount you\u2019re\n shelling out. \n <\/td> \n The line of credit is not\n interest-rate driven and comes with a lower, but variable rate. \n <\/td><\/tr> \n Closing cost\n <\/td> \n Business loans carry with them\n a higher closing cost, typically between 5-7%.\n <\/td> \n The closing cost of a business\n line of credit is much lower, and in certain cases, there may be no closing\n cost at all.\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n