11. July 2012 05:45
There are two basic types of credit that are available from most lenders. The first is a basic term loan, where you receive a set amount of money at a certain time and repay it incrementally over a longer period of time. The second option is a business line of credit. Here you have a maximum amount, beyond which you may not borrow. But up to that maximum you are permitted to borrow as much or as little as you need. Depending on what type of business line of credit you have, the upper limit may be able to be adjusted.
The main difference between the two is their flexibility. Term loans are a one-time thing; you can't simply request more money without negotiating a separate loan and all the associated paperwork. But with a business line of credit, raising the credit limit can be much simpler.
These differences mean that they're best suited to disparate applications. If you're making a one-time purchase or a one-time investment, then go with a term loan. You'll be able to pay for the entire purchase at once, and you'll know exactly how much you'll owe on it over the coming months. But be certain that you're really going to need it just once. Don't get caught with a loan that's smaller than what you actually need because the amount you get isn't negotiable after you've signed the agreement.
A line of credit offers more flexibility. It's great for creating a bridge between your current financial resources and what's necessary to finance a new project. You can pay it back on your own schedule and you can easily expand the amount you're borrowing to fit potentially unforeseen costs.