Businesses operate to earn money. This means that their expenses need to come in under their revenues on a regular basis. As long as the revenues are higher than expenses every month, there should be few problems hitting payroll and paying off any bills. Many businesses tend to be seasonal, however. One leading example of a seasonal business would be a retail establishment that makes more money around the Christmas holiday.
The Line of Credit vs Credit Card
Seasonal businesses will have seasons in which they will be flush with cash. There may also be a season in which there is not enough cash available to pay off all bills. This is where business financing comes into play. Small business owners can opt to gain financing through conventional loans, lines of credit and business credit cards. All of these offer to fund for businesses, but there are some major differences as well. Let check out the line of credit vs credit card as below.
Loans
Conventional loans usually come through banks or through crowdfunding options. This option allows a business owner to borrow a specified amount. The interest rate and the amount that a business can borrow will be related to the perceived creditworthiness of the business or its owner in the case of a sole proprietorship. The terms of the loan will usually be fixed. This means that the interest rate will usually stay steady throughout the length of the loan. Business loans could come from regular banks, or borrowers could look for online title loans that could fit the bill.
Lines Of Credit
Business lines of credit differ from small business loans because they allow a borrower to access up to a fixed amount of money. However, the borrower does not have to access all of the money. This means that a borrower with a $50,000 line of credit might only need to use $20,000. The interest rate will vary based upon the borrowers creditworthiness and would only be applied to the amount borrowed, which would be the $20,000 amount. Additionally, the borrower can pay off the loan at his or her own pace as long as the minimum payment is made each month. Payments can be accelerated should cash become available, and the business could avoid some interest expenses in this way.
Business Credit Cards
Banks are more than happy to extend credit to small business owners through the use of business credit cards. These are similar to lines of credit in the regard that borrowers only need to use as much of their limit as they need to at any given time. Business credit cards will usually come with higher interest rates than lines of credit. They can also come with great rewards. These rewards can involve frequent flyer miles or cash back, both of which can really help out a small business owner. Of course, those who fail to pay off the amount borrowed each month will be required to pay interest charges. Borrowers who can pay off their charges in full each month could actually come out ahead by using credit cards whether they need to access credit at all.
As long as a business owner has decent credit, there are options for accessing money when cash flow is low. Taking the interest rate and the payment terms into account is key. Otherwise, a small business owner could wind up paying more than he or she would need to.