After one of my recent posts, entitled Term Loan vs. Line of Credit – When to use and why? I received a number of questions from small business owners who felt they didn’t fit into the categories I provided.  And of course, not everything in small business is as cut and dry as the examples I previously provided, so I thought it might be helpful to expand on this conversation a bit.

Imagine a small business that wants to launch a growth initiative that will require new marketing material and additional salespeople. At first glance, it might seem that a line of credit would be the best way to finance the ongoing printing of new brochures and payroll. However, what if the initiative involves hiring a graphic designer to produce new material and an extensive training program for the new sales reps? You would hopefully expect to get long, residual value from this investment.

Financing such an initiative with a term loan could be the better option, since the loan serves as an ongoing source of permanent working capital.  As the initiative bears fruit, revenues and profits replace the term debt with new equity. In this case, a term loan finances assets that have a less clearly defined path to creating new revenues than something more obvious—such as a machine capable of producing more widgets.

On the other hand, suppose you wish to invest in new office supplies and computers for your staff as well as a new copier for the entire office. You may wish to get years of value out of these goods but financing all of these purchases with one or more term loans may put you in debt for longer than you would like, and it may be more practical to finance it through a line of credit.

My point is this, your business needs are unique to you, and it is my job to help you wade through your financing nuances.  I’m happy to talk in more detail any time you may feel confusion.  Let me know if I can help!