What’s The Distinction Between A Small Business Loan and A Line Of Credit?

When it comes to financing your business needs, you may be considering two popular options: A business loan or a business line of credit.

Small business loans and lines of credit have important similarities. They both offer businesses the opportunity to leverage existing assets in exchange for liquid capital. This capital can be spent on a variety of relevant operational needs.

However, there are some important differences between small business loans and lines of credit. Understanding how a loan and small business line of credit differ can help you make the right choice when deciding how to finance your business.

Small Business Loans

A small business loan is, in general terms, a fixed amount of money provided by a financial institution to a business. Many small business loans are offered in smaller amounts than large commercial loans to give small businesses a better chance to pay the loan back. You can use the loan funds for almost any aspect to operate your business.

The concept behind a small business loan is simple. A business owner requests the loan through a loan application. If approved, most lenders fund the entire loan amount requested by the business owner.