There are many lending options available to entrepreneurs, but how do you know which one is right for you and your business? Even if you’re confident in the loan type you want, it’s worthwhile to spend a little extra time understanding the fine print before signing a contract.
Because there are many lenders and plenty of short- and long-term financing solutions, it’s easy to be overwhelmed with options—several of which might sound the same, but they’re certainly different!
How can you spot the difference? We’ll tell you that and more about true lines of credit.
A line of credit’s key feature is that you have a maximum lending amount, established by the bank or lender offering the line of credit. You can take draws up to that maximum amount on a rolling basis. Depending on the lending agreement, you may have to pay interest on any account balance they maintain after a payment cycle.
The flexibility and function of a line of credit unfortunately make it easy for customers to confuse a true line of credit with other, longer-term financing solutions.
Some products have subtle differences that could result in additional restrictions, altered payment terms, or other constraints that might be different than the customer’s original expectations.
Other products may offer some benefits of a line of credit, but not the full package. Check for these attributes when evaluating your ongoing small business financing solution:
Our table below describes some of the major differences between a true line of credit for business and other hybrid solutions. These could be a merchant cash advance, purchase of receivables agreement, and invoice factoring, sometimes confused with a line of credit.
Monthly or weekly
Regular (daily or weekly)
When you need business funding, it’s important to read through all the fine print and make sure the solution you choose isn’t just best for you right now, but best for long-term financial sustainability.