Most business owners we talk to have heard of both but when it comes to actually picking between a business line of credit vs business loan they’re not sure which way to go. Fair enough. They work differently and depending on your situation one is going to make a lot more sense than the other.

What a Business Line of Credit Is

You get approved for a set amount. Say $50,000. You don’t take all of it though. Maybe you pull $10,000 one month because you need to cover payroll while you’re waiting on a client to pay an invoice. You pay it back and that $10,000 is available again. You only pay on what you use.

Restaurants, retail, service businesses. Basically anyone where some months are great and others are brutal. That’s who tends to use a line of credit because the money is just there when you need it and you’re not going through a whole application every time something comes up.

Canada Capital offers a business line of credit with fast approvals and flexible terms.

What a Business Loan Is

Different setup. You get the full amount all at once and pay it back over a fixed period. You already know what you need it for and how much it’s going to cost.

Say you’re a contractor and you just landed a $200,000 job but you need $40,000 upfront for materials. You’re not going to use a line of credit for that. You know the number. Same thing if you’re buying a vehicle for your fleet or opening a second location or doing a big renovation. The money goes toward one thing and you pay it off.

If you need small business capital for something specific a loan is usually the way to go.

Business Line of Credit vs Business Loan, What’s the Difference

Line of credit is revolving. Use it, pay it back, use it again. Loan is one time. Get the money, pay it off.

Interest works differently too. With a line of credit you’re only paying on what you’ve drawn. With a loan you’re paying on the full amount from day one. So if you take $50,000 but only actually needed $30,000 you’re still paying interest on the full fifty. That adds up.

Then there’s repayment. Line of credit is usually more flexible because the balance moves around depending on what you’ve used. Loan payments are fixed. Same amount every month. Some people like that because they can plan around it. Others find it annoying when they have a slow month and that payment doesn’t care.

Mistakes We See People Make

Taking out a loan when they really needed a line of credit. They borrow a big lump sum for general cash flow stuff and now they’re locked into fixed payments on money they didn’t need all at once.

Or the opposite. Opening a line of credit when they have a specific large expense coming. They draw the full amount anyway and end up paying more in interest than they would have with a loan.

Know what you need the money for before you apply and this gets a lot easier.

How Fast Can You Get Funded

Banks take weeks. Sometimes over a month if they keep asking for more documents.

We move faster. We’ve funded businesses the same day they applied. That’s not every deal but it happens. Most people hear back from us within 24 hours. We’re looking at your sales not spending three weeks going through your credit history and tax returns from 2019.

Which One Do You Need

If you know exactly what the money is for and how much you need, loan. If you’re not sure or you want something sitting there for when you need it, line of credit.

Plenty of business owners use both at different times. Whatever works.

Talk to Us

Apply here or call us. We’ll look at your numbers and tell you which one fits.