New businesses should consider lines of credit before new business loans, and not just because the latter are harder to obtain, a guide recently published by New Business Funders suggests.
Each of those options are designed for specific circumstances, so, for example, it is not recommended that many small businesses take out an actual loan unless they can quickly generate income from it, because they immediately begin to pay interest on the entire amount, as opposed to only paying interest on the amount accessed from the line of credit.
Lines of credit have other advantages, the report says. Startup loans usually come with more red tape, and lines of credit are based on personal credit scores, while business loans consider the business’s credit score and transaction volume.
“It’s comforting to know that you have numerous options to choose from when attempting to fund your new business,” New Business Funders’ Troy Bohlke said. “We help you better understand the pros and cons between startup loans and lines of credit, so you can make an informed decision for your startup capital.”
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