Should My Small Business Get a Line of Credit or a Term Loan?

When your business needs financing, choosing the right type of loan matters. Two common options for small businesses are a 
business line of credit and a term loan, but they serve different purposes.
At Bank Michigan, we help business owners throughout Brooklyn, Onsted, Ann Arbor and Jackson, Michigan understand their options 
before they borrow.

What Is a Business Line of Credit?

A business line of credit provides access to funds up to an approved limit. Rather than receiving all the money at once, your business 
can draw funds as needed and typically pay interest only on the amount borrowed.
Lines of credit can be useful for short-term or recurring needs such as:

•    Managing seasonal cash flow
•    Purchasing inventory
•    Covering temporary payroll needs
•    Handling unexpected expenses
•    Bridging gaps between receivables and expenses

One important tip? Talk with your banker before you actually need the money. Establishing access to working capital ahead of time 
can give your business greater flexibility when opportunities or unexpected expenses arise.

What Is a Business Term Loan?

A term loan generally provides a specific amount of money upfront that is repaid over an established period.
Term loans are often better suited for planned, longer-term investments such as purchasing equipment, vehicles, commercial real 
estate or financing a significant business expansion.

Which Business Loan Is Right for Me?

Start with what you're financing.
If you need ongoing access to working capital, a line of credit may make sense. If you're making a specific purchase with a defined 
cost, a term loan may be the better fit.
For Michigan small business owners, the best first step isn't choosing a loan, it's having a conversation.
Talk with your local Bank Michigan business banker about where your business is headed and which financing option may help you get there.
Better. Thinking. Banking.™