Business credit or business loan

What is the difference between business credit and a business loan? You will want to find out before taking out either. This article explains the difference between the two, as well as how to use them, and the fees you will be required to pay.

Business credit 

Business credit is an X amount of money that is available to you at the bank. You can take out money to a fixed limit when you need it. You decide when you do this, and how much you withdraw. You will only pay interest on the sum you have withdrawn. You repay a portion of the amount each month, and can withdraw it again if you need it. 

Business loans 

If you take out a business loan, the amount you loan is transferred to your account as a lump sum. You will then repay the amount in monthly, equal instalments. You cannot re-lend money you have repaid. You pay a pre-agreed interest rate on the amount outstanding. 

Purpose 

You can use business credit if you temporarily lack the cash flow to cover ongoing expenses, such as paying suppliers’ bills, replenishing stocks, investing in marketing campaigns, or machine maintenance. 

Business loans are suitable mainly for one-time, major expenses – you will use it to pay long-term investments. This might include business assets (in Dutch) such as a new machine or car, the design of a website, or a free investment in terms of growth and expansion. 

Costs 

The interest rate you pay depends on a variety of factors, including your business’s financial health. You will pay interest and repayment for both types of finance. If you take out business credit, you will also be required to pay service charges for the financial limit. For business loans, you pay the closing fee of the loan amount. 

Term and flexibility 

Business credit allows you to withdraw and repay when you like. After each year, your lender will review your credit and will adjust the interest rate based on the new situation. If you have no cash flow problems, you generally pay a lower interest rate. You may also no longer be eligible for the credit, in which case you will repay the amount outstanding. 

A business loan allows you to determine how long you want to take to repay your loan: a minimum of three months and a maximum of five years. You repay an equal portion of your loan every month, which means that the shorter the term of the loan, the larger the amount you repay each month. You will not be able to withdraw money you have repaid.