Today there are so many types of financial products for companies, that sometimes it can be difficult to know which one to choose for each thing. In today’s article we will teach you to determine when it is best for you to use a business line of credit and when to apply for a business loan.
Difference between loan and credit
Although we often use the terms “loan” and “credit” as synonyms, strictly speaking both refer to different financial products.
A credit can be requested to pay in installments for some good, or it can be an open line with a certain limit amount that the client has available as needed. In this case, interest is charged only on the amount that the user actually spent, and not on the total amount available. Another of its peculiarities is that you can generally make minimum payments so as not to incur delinquency, although this causes interest to skyrocket. On the other hand, you can make larger payments to the corresponding month without the bank penalizing you.
It should be considered that, in addition to the interest generated by the provision of money, credit lines normally involve the payment of annuities for the simple fact of enjoying the service. On the other hand, if you buy a product on credit, such as a car, it is likely that in addition to interest you will be charged other amounts such as the cost per opening.
A loan, on the other hand, is when a financial institution deposits you at one time a certain amount of money that you have to return within a certain term, and on which you are charged fixed or variable interest. In addition to interest, some institutions also charge opening fees, annual renewals and insurance policies.
It is better for you to ask for a business loan
1. There is some kind of special loan for what you want to acquire
This is perhaps the first criterion you should consider before paying something with credit or applying for a loan. Financial institutions are increasingly developing specialized products so that companies can acquire, for example, machinery, real estate and working capital.
In Cimitum, you can find several types of special credits that cover specific needs for your business with especially attractive benefits and conditions.
2. You need a payment term of more than one year
Whatever you want to acquire with a payment term of more than one year, it is better for you to pay it in cash with a business loan than to let yourself be stifled with the interests of online credit payments, which are usually higher.
In this sense, your best bet is to find the business loan that gives you the best possible conditions and also gives you the possibility of renegotiating payments if it becomes necessary, without being charged too many penalties. Always calculate the total cost of a business loan against what it would cost to pay with credit.
3. You cannot pay with card or months what you need to buy
For a long time, entrepreneurs and businessmen opted for business loans on credit lines because there were many things that could not be “paid by card” or monthly payments, but today there are fewer and fewer establishments and businesses that do not accept this type of payments.
However, if you go through such a situation and choose to take cash from your credit line to pay, remember that they usually charge much higher interest for the provision of cash than for the direct payment of a product or service.
In Cimitum, part of our mission is that you always access the best possible financial product to grow your business. Come to us and compare among dozens of specialized loan alternatives so you can choose the option that suits you best.