Differences Between a Business Loan and Business Line of Credit
Funds are the lifeblood of a business. They are the fuel that keeps it running. Knowing the difference between the various modes of finance is important for business owners seeking funds to grow their venture.
An in-depth study of the various financing options with actual requirements is essential before securing funds. If not, it may result in either inadequacy of funds or serving unnecessary debts. Business loan and line of credit are two most popular modes of financing available in the market.
Here is a comparative study between the two.
While organisations can use a term business loan only once, they can utilise a line of credit many times according to their needs. A line of credit gives business owners the flexibility and freedom to use the funds when required. This is one of its biggest advantages. Thus, it prevents idling of funds.
We, at Bajaj Finserv, offer a business loan up to Rs. 30 lakh with a line of credit facility.
Generally, a business loan is a source of finance utilised for a specific need, for example purchasing machinery. On the other hand, a line of credit can serve various purposes. Organisations use a line of credit as a continuous channel of finance for a range of business requirements.
Business owners can use a Business line of credit to upgrade existing equipment, train employees, scale up growth, and much more. The purposes are diverse and depend on immediate business need.
Mode of Payment
Business loans usually follow a periodic cycle. But, in case of a line of credit, the payment depends on the amount of funds used.
The mode of payment of a line of credit generally consists of the interest amount and not the principal component. This reduces monthly EMIs, thereby helping business owners to save big. Thus, they can build on their existing capital.
The line of credit offered in Bajaj Finserv’s Business Loan allows business owners to repay the principal at the end of the tenor. Thus, it acts as a big savings arm in cash flow.