As your business grows, you’ll likely need to make larger purchases, like equipment and inventory, in order to keep up with demand. If you’re looking to make big purchases, there are two ways you can do it through an installment loan or through a revolving line of credit. Each option has its own pros and cons, so it’s important to know the difference between the two before you start shopping around for financing options. Keep reading to learn more about revolving vs. installment loans for your small business!
How does a Personal Revolving Loan work
Most personal loans are approved in under 15 minutes and your credit score is not a factor so you can focus on funding rather than what it will do to your score. After filling out the loan application, there’s an easy-to-use dashboard where you decide when to repay it without having to talk with anyone or sign any additional documents. Then, funds are deposited directly into your bank account usually within one business day of being approved, which means you can go about running your business as usual. Plus, there’s no collateral required!
To take out a personal loan from Lending Club, you can get started online by entering some basic information about your business and then signing and submitting an application. When your loan is approved, it’s deposited into your bank account usually within 24 hours, so you can go right back to running your business without missing a beat.
It may be tempting to opt for an installment loan instead of a personal loan because they offer fixed monthly payments, but with revolving loans, you have more flexibility because there are no fixed payment amounts or schedules to worry about—you decide when and how much you want to repay! There are no preset payment terms when taking out a revolve —you simply make payments as often as once per month or less than once per year!
Why go with an installment plan instead of a personal line of credit
There are a few advantages to installment loans for your small business.
First, with an installment loan, you know exactly how much your monthly payments will be so you can budget accordingly.
Second, interest rates on these loans tend to be much lower than personal lines of credit and because the loan doesn’t need to be paid off all at once, it allows for lower monthly payments which are less risky than risking everything in one shot and failing.
Third, an installment loan is great because you have several months to get the funds together so there isn’t as much pressure when securing a line of credit right away and having to pay a big sum upfront or having your bank account tied up as collateral while waiting for approval on that line of credit.
The pros and cons of both Revolving and Installment loans
Revolving loans have variable interest rates, meaning they’re subject to changes at any time; that’s not the case with installment loans. And while installment loans are typically more expensive, they provide a fixed monthly payment, which helps keep things consistent. They also usually offer longer payback periods than revolving loans, meaning you’ll pay more in interest over time – but if your business is growing and you know there will be enough profit to pay back the loan with ease, this may be worth it!
Generally, revolving loans tend to be simpler to apply for, since there’s no need to provide collateral as you would with an installment loan – but there are plenty of other factors you should consider before applying! Each type of loan has its advantages and disadvantages, so check out our table to see how they stack up in detail before deciding which one’s right for your business.
How much can you expect to pay back per month?
Installment loans tend to be shorter-term and cover a smaller amount than what a revolving loan can offer. They are best suited for people who want to pay back more quickly, but the tradeoff is that you need a solid credit history with no major blemishes. While the interest rates on both types of loans are usually comparable, the monthly payments differ based on how much you borrow and what your repayment term ends up being.
Revolving loans typically have higher APRs than installment loans and they come with lower payments in contrast to longer-term payoff periods; however, revolving loans have better flexibility in terms of payment frequency since borrowers can make repayments as often as every month or once per year as needed.
Other considerations when deciding on your type of Loan
Both loans have their own advantages and disadvantages, so it’s important to compare the rates, terms, fees, and what kind of loan will suit your business best when choosing between installment and revolving loans. In general, revolving loans are the better option if you’ll need to take out another loan in the future to cover operating expenses because they allow you to roll over your original balance with additional funds (but at a higher rate).
If you don’t think you’ll need another loan in the near future or you want to make sure all of your money is going toward reducing your debt load as quickly as possible, then an installment loan might be a better choice for you. It also might be a good idea to consider taking both types of loans, such as getting a revolving loan first and then applying for an installment loan once you’ve paid off some of the principal.
You can also consider getting one type of loan with staggered payments over time—such as paying down an installment loan monthly rather than in one lump sum—which may help reduce interest charges by spreading them out over more months.
Finally, many people opt for debt consolidation through personal loans or home equity lines of credit instead of looking for small business financing options; these types of lending options may work well for your company if you’re only planning on borrowing a small amount but not planning on borrowing again anytime soon.