Term Loan vs Line of Credit: What Hyderabad Businesses Should Know

Term loan vs line of credit for businesses in Hyderabad. Understand the differences and make the right decision for your business.

So you are running a business in Hyderabad. First of all, congratulations, running a business is no small feat it does not matter if it is a small café near Jubilee Hills or a fast-growing SaaS startup in HITEC City. Now, regardless of your business, one thing is very important in its successful operation: cash flow, which sometimes can be an issue. Naturally, business loans in Hyderabad can help you out. But before you do so, do you really understand what options are available to you?

For business loans, there are two popular options to consider: a term loan or a line of credit (LOC). They both are lifesavers, but what exactly are they? Let’s find that out, shall we?

What on earth is a term loan?

To better understand the difference between them, we have to first understand what they are, starting with the term loan.

Now, when discussing the term loan, I ask you to think of it as a big, one-time birthday gift from the bank. You get a lump sum from your lender and then you have to repay it in fixed EMIs.

Here are some perks of the term loan:

● It is predictable same EMI every month

● The lower interest is usually (more often than not) lower when compared to revolving credit

● Great for long-term projects

            But there are some downsides too:

● There is no flexibility with this option

Now, A Line of Credit?

Now for this, I want you to think of a wallet that is refillable. Yes, this is exactly that. You can dip into the wallet whenever you need to. And guess what, you only pay interest on the bit that you can actually use.

Here are some perks of this option:

● This option is a lot more flexible compared to the previous one

● The interest is only charged on the amount you withdraw; no interest if you don’t use the credit line

● A brilliant option for short cash gaps or rolling expenses

There are some downsides too:

● Higher interest rates compared to a term loan

● Requires discipline easy to overspend if you are swipe-happy

Which Option Works for Hyderabad’s SMEs?

Basically, this depends on what the requirements of the business in question are. Take this, for instance

● For a business owner who is opening a second cloud kitchen, say in Madhapur, a term loan would suit them best. They can calculate the loan amount based on the interiors, ovens & upfront licences they need in one go.

● On the other hand, in the case of a boutique operating during a festival and handling the seasonal inventory, a line of credit will work a lot better. This will help the boutique keep the shelves stocked without maxing your credit card.

The optimal answer to the question and what most businesses in Hyderabad do is they use both. Term loan for the “big stuff” and a Line of Credit for day-to-day issues.

Final Thoughts

There you have it, folks our two cents on what the differences are between a term loan and a line of credit. They are both useful, but understanding what they are helps one make better decisions for themselves & their business. So the next time you are going for Business Loans in Hyderabad from loans paradise you know which option to ask for.