Finding the right kind of financing for your business can have a big impact on how smoothly your cash flow runs, how quickly you can take on new opportunities, and how easily you can keep your business stable. Small businesses often compare business lines of credit and business loans, but they work in very different ways.

This guide makes everything easy to understand so you can see how each option works and which one is best for you. You’ll also find out how ICG Funding can help you get approved for the product that will help you reach your goals the best.

You’ll know by the end of this guide:

• What a line of credit for a business is
  
• What a loan for a business is
  
• The ways they work differently
  
• How interest and repayments really work
  
• When each choice makes sense
  
• What lenders want
  
• What costs to expect
  
• Which choice is best for cash flow?
  
• How to use ICG Funding to apply
  

Let’s take it all apart.

What Does It Mean to Have a Business Line of Credit?

A business line of credit, or BLOC, is a way to borrow money when you need it, up to a certain amount. A LOC is more like a revolving pool of money that your business can use whenever it needs it, rather than giving you a large sum of money all at once.

How to Use a Line of Credit

• You have a limit, like $30,000, that you can spend.
  
• You only take money out when you need it.
  
• You only pay interest on the money you borrow.
  
• Your available limit resets as you pay back.
  

It’s like having a financial safety net that you can use whenever you need money or when unexpected chances come up.

What Is a Loan for a Business?

You get a business loan in one big payment that you pay back over a set amount of time. The loan ends when the money is spent and the loan is paid off. There is no revolving access.

How a Loan for a Business Works

• You get a set amount of money.
  
• Payments start right away.
  
• You pay interest on the whole loan.
  
• Payments every week or month stay the same.
  
• Once the loan is paid off, it is over.
  

Loans are better for big, one-time costs than for ongoing cash flow needs.

Important Differences Between a Loan and a Line of Credit

Here is the easiest way to compare them:

Credit Line for Business

• Take out a loan when you need it
  
• Only interest on what you take out
  
• Access that changes
  
• Paying back in a flexible way
  
• Great for short-term needs
  

Loan for Business

• Pay the full amount up front
  
• Interest on the whole amount
  
• Payments and terms that are set in stone
  
• Best for investments that last a long time
  

A LOC is usually better if you need flexibility.
A loan makes more sense if you need a bigger lump sum.

Differences in Repayment: Structure vs. Flexibility

The way repayments are set up is one of the biggest differences between a LOC and a business loan.

Paying Back a Line of Credit

• You only pay back what you borrow.
  
• Payments are usually made once a week or once a month.
  
• You can pay off your debt early to pay less interest.
  
• Those funds are available again once they are paid back.
  

Good for:

• Cash flow drops during certain times of the year
  
• Costs in case of an emergency
  
• Restocking the inventory
  
• Paychecks
  
• Pushes for marketing
  

Paying Back a Business Loan

• Payments are set and easy to plan for.
  
• The whole loan amount is used to figure out interest.
  
• You can’t redraw money.
  
• Terms can last anywhere from six months to more than five years.
  

Good for:

• Tools
  
• Cars
  
• Changes to the building
  
• Growth
  
• Buying a lot up front
  

Differences in Interest: Which One Costs More?

Interest works in very different ways for each kind of loan.

Interest on a Line of Credit

Interest only applies to the amount you take out.

For example:
$40,000 is the limit.
Draw = $10,000
Interest = Only on the $10,000 you borrowed

Average APR ranges:

• Banks: 8%–14%
  
• Lenders who work online: 12%–25%
  
• Borrowers with a higher risk: 20%–35%
  

Interest on Business Loans

Interest is charged on the whole loan amount, even if you don’t use all of it.

Common APR ranges:

• Banks: 7%–14%
  
• Lenders online: 10%–30%
  
• 20% to 45% of borrowers are high-risk.
  

A line of credit is usually the best choice if you want to keep costs down and avoid paying extra interest.

Which Choice Is Better for Cash Flow?

A business line of credit is usually the best choice if cash flow is your top priority because it lets you be flexible right away.

Choose a Line of Credit if You:

• Have cash flow that changes
  
• Want a backup plan in case of an emergency
  
• Need working capital a lot
  
• Go through slow times during the year
  
• Want to be able to access funds if you want to
  

Pick a Business Loan If You

• Want a big, one-time payment up front
  
• Are buying cars or tools
  
• Are adding on or fixing up
  
• Are paying for a long-term project
  

Most businesses use both types of financing at different times.

Which Choice Builds Business Credit Faster?

Both items can help you get business credit, but they do so in different ways.

A Line of Credit Helps You Build Credit By:

• Using it often
  
• Paying back on time
  
• Keeping your use low
  
• Keeping an account open for a long time
  

A Business Loan Helps You Build Credit By:

• Payments that are always on time
  
• Paying back the full amount of the loan as promised
  

A line of credit can help you build credit faster because it shows that you are responsible with money all the time, not just once.

Which Is Easier to Get: Approval Requirements?

This is where the biggest difference comes out.

Requirements for a Line of Credit (Easier)

• 600 to 630+ credit
  
• In business for more than six months
  
• Monthly income of $8,000 to $12,000
  
• Health of clean bank statements
  

Lenders pay close attention to:

• Average daily balances
  
• Overdrafts
  
• Consistency in deposits
  
• Patterns of cash flow
  

Requirements for a Business Loan (Harder)

• 650–720 or more credit
  
• Better finances
  
• Less use of debt
  
• More paperwork
  

Loans often need:

• Tax forms
  
• P&L reports
  
• Sheets of balance
  
• Plans for paying off debt
  

It’s easier to get a LOC if your business is new or your credit isn’t perfect, especially through ICG Funding.

Which Is Faster to Get Approved?

A line of credit is usually the best choice if you need money right away.

Credit Line

• You will get approvals in 24 to 72 hours.
  
• Little paperwork
  
• Quick access to money
  

Loan for Business

• Banks: a few weeks
  
• 3–7 business days for online lenders
  
• A lot of paperwork
  

A LOC is the clear winner when timing is important.

The Good and Bad Things About Each Option

Pros of a Business Line of Credit

• Very adaptable
  
• Pay interest only on what you use.
  
• Good for cash flow
  
• Funding that can be used again
  
• Quick approval
  

Disadvantages

• Rates are a little higher for applicants with a lot of risk.
  
• Less strict initial limits than loans
  

Pros of Business Loans

• Bigger lump sums
  
• Lower rates for good borrowers
  
• Payments that are fixed and easy to predict
  
• Best for projects that will take a long time
  

Disadvantages

• Interest on the whole amount
  
• Approval takes longer
  
• No access that changes
  

Which One Should YOUR Business Pick?

This is the easiest way to choose:

Pick a Line of Credit if you:

• Need money to run your business
  
• Have cash flow that changes
  
• Want a safety net
  
• Need quick access to cash
  
• Use money often, but in small amounts.
  

If You Want a Loan,

• Need a lot of money up front
  
• Are putting a lot of money into it
  
• Want set payments
  
• Make sure you have a clear long-term plan.
  

A lot of businesses keep a line of credit open all the time so they can be flexible. They only use loans when they need to make big purchases.

How ICG Funding Can Help You Pick and Get Approved

ICG Funding works with a lot of lenders, such as:

• Banks
  
• Lenders in the fintech space
  
• Lenders who are private
  
• Lenders based on assets
  
• Lenders based on revenue
  

This means that ICG Funding can help you get:

• A credit line
  
• A loan for a business
  
• Or a mix of the two
  

ICG Funding helps in the following ways:

• Finding the right lenders for you
  
• Making it more likely that you will be approved
  
• Helping with bad credit
  
• Getting higher limits
  
• Lowering rates and fees
  
• Staying away from predatory lenders
  
• Getting money in 24 to 72 hours
  

Their team makes the whole thing easier and finds the best solution for you.

How to Get ICG Funding

This is how simple it is to get going:

Step 1: Send in your application
Step 2: Send in bank statements from the last 3 to 6 months.
Step 3: Look over several offers from different lenders.
Step 4: Pick the terms you like
Step 5: Get money

Quick. Easy. No stress.

Last Thoughts

You should have both a business line of credit and a business loan in your financial toolbox. The most important thing is to know which one works best for you right now. A loan gives you structure for long-term investments, but a LOC keeps you flexible and safe.

When you work with ICG Funding, you can get both, along with expert help that helps you pick the right tool and get approved quickly.