Home – New Forums Starting your journey Line of Credit vs. Business Loan

  • This topic is empty.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • #987321
    HarryMarcus
    Member
    • Total posts: 1
    Up
    0
    ::

    Howdy people,

    I’m hoping to draw upon the vast array of wisdom with a finance related question.

    I’m in discussions with a business banker in an effort to borrow 250k to start a greenfield franchise site.

    I will be securing the debt against a cash term deposit.

    Whilst the business banker is attempting to sway me towards a business loan, I figure a LOC may afford me more flexibility and perhaps even a better interest rate.

    Can anyone afford some advice based on the above? Specifically keen to understand:

    – Whether I can secure a LOC against a term deposit
    – whether there’s any over and above advantages to a business loan vs. LOC

    Thanks in advance guys,
    Harry

    #1162120
    sam_leader
    Member
    • Total posts: 660
    Up
    0
    ::

    G’day Harry,

    I notice this is your first post, so welcome to the forum.

    I hope someone in the community steps in with some guidance.

    Meantime if you are in inclined to do so, head on over to the introduce yourself thread and tell us a bit about what makes you tick.

    Best regards,

    Sam

    #1162121
    Johny
    Member
    • Total posts: 840
    Up
    0
    ::

    Been a while since I played the banking game, but maybe I can offer some comment, seems no one else has.

    Term deposit is one of the best forms of security for a bank (much easier to cash out in the event there is a problem, than trying to sell a mortgaged property.) So I can’t see that would be an issue.

    Line of Credit is a bit different for a business than it is for say buying investment properties as a person. But there are a couple of fundamental differences between LOC and loan regardless:-

    1. Loan is usually for buying an asset that you intend to repay over time, whereas LOC is more for aiding in cash flow – Draw it down when you need to pay some bills, repay it as the money comes in, just as with an overdraft. And I would think that is why your banker is pushing you towards to loan, you are buying an asset.

    2. LOC requires a lot more discipline to use well. Yes, it does offer flexibility, but it is also easy to develop a hard core debt that ends up costing you more in the long run.

    If it is a business that will be buying stock for resale, perhaps an alternative may be a mix of both. For example, a loan for the purchase and development of the site, and a LOC for purchases of stock etc to assist with cashflow.

    Obvioulsy, I am making this as a general observation as I don’t know the details.

Viewing 3 posts - 1 through 3 (of 3 total)
  • You must be logged in to reply to this topic.