Government ContractorsGovernment Contractors

ABOUT | REGISTER | ADVERTISE | SUBMIT NEWS | AGENCIES | COMPANIES | RESOURCES
  • No products in cart.
  • Getting Started

    Basics of Government Contracting

    • Getting Started (HOME)
    • What Is Government Contracting?
    • Basics of Government Contracting
    • Government Agency Profiles
    • Types of Contracts
    • Identifying Your Audience
    • How To Win A Contract – The Basics

    Discussion Forums

    • Discussion Forums (Home)

    What Do You Want To Know?

    We will do our best to provide you with the information, resources, and courses you need.
    • Tell Us What You Want To Learn

    GovCon Business Resources

    • Business Resources (Home)
    • Accounting and Taxes
    • Banking, Capital, Loans
    • Business Development / Sales
    • Capture Management
    • Proposal Management
    • Contract Management
    • Human Resources
    • Legal and Compliance
    • Technology and Software
    • Marketing

    Courses and Learning Resources

    • Education (Home)
    • View All Courses
    • Create A Course
    • Create A Webinar
    • Books
    • Bootcamps

    Networking and Events

    • Networking (Home)
    • How To Network Effectively
    • Upcoming GovCon Networking Events
    • All Events (Calendar View)
  • Education

    Government Contractor Courses

    • VIEW ALL COURSES
    • How To Create Successful B2B and B2G Webinars (Course and One On One Consulting)
    • LinkedIn for B2B and B2G Networking 101
    • Search Engine Optimization for Government Contractors 101
    • Small Business Marketing To The Government 101
    • Social Media 101
    • E-mail Marketing 101

    Third-Party Courses

    • A Contractor’s Guide to Doing Business with the Department of Homeland Security (Federal Publications Seminars)
    • A Guide to Accounting and Billing Systems (Federal Publications Seminars)

    Teach - Share Your Knowledge

    • Create A Course
    • Create A Webinar

    Attend A Bootcamp or Training

    • Bootcamps

    Books for GovCon Professionals

    • Books (Home)
  • Federal
  • State & Local
  • Industries

    Industries

    • Industries (Home)
    • Aerospace and Defense
    • Architecture, Engineering, Construction
    • Computers and Communication Services
    • Facilities Management
    • Hardware and Software Providers
    • Professional Services

    Latest Industry Articles

    • Harris Corporation and L3 Technologies To Merge Into L3 Harris Technologies

    • Google Will Not Bid for Pentagon’s $10 Billion Joint Enterprise Defense Infrastructure cloud, or JEDI

    • General Dynamics Awarded $481 Million for Continued Development of U.S. Navy’s Next Ballistic-Missile Submarine

    • Defense Spending Includes $162 Million For Portsmouth Naval Shipyard In Maine

    • Naval Medical Logistics Command Awards Leidos Contract to Study Health Impact of Undersea Operations on Submariners

    • Gulfstream Awarded U.S. Air Force Fleet Support Contract

    • General Dynamics Ordnance and Tactical Systems Awarded Contract for U.S. Army’s Ground Mobility Vehicle Program

    Get Involved In Government Contractors

    We want to grow the Government Contractors community. To do that, we need you! Review the options below, and select the opportunities that best meet your interests.
    • Register To Become An Author or Thought Leader on Government Contractors
    • Create A Course
    • Create A Webinar
    • Create A Podcast or Netcast
    • Post An Event
    • Contact Us To Discuss Your Interests
  • Federal Contracts

    Pre-Solicitation Contracts

    • Imports And Systems Inspection Regulatory Compliance And Enforcement (SIRCE)

    • Operation of the San Diego Job Corps Center

    • Pre-Solicitation Bids (Home)

    Active Bids

    • Adapting USAID Democracy Rights and Governance Assistance to Better Address Global Trends

    • Active Bids (Home)

    Awarded Contracts

    • Universal Enrollment Services (UES) Bridge Award

    • Awarded Contracts (Home)

    Cancelled Bids

    • SAMHSA Public Engagement Platform (PEP)

    • Large Electronic Medical Record (EMR) system

    • Puerto Rico Army National Guard (PRARNG) State Child and Youth Program Resilience Training for Teens I

    • Special Operations Forces Personal Equipment Advanced Requirements (SPEAR) Soft Armor Ballistic Inserts

    • Cancelled Bids (Home)
  • Networking & Events

    B2G Networking Resources

    • How To Network Effectively
    • How To Create A Successful B2G Event
    • How To Create A B2G Webinar

    Upcoming B2G Events

    • Drupal GovCon
    • Greater Washington Government Contractor Awards™ Finalist Reception
    • The Greater Washington Government Contractor Awards™

    Event Categories

    • GovCon Networking
    • Conferences
    • Webinars
    • Awards
    • All Events (Calendar View)

The Difference Between a Bank Line of Credit and Term Loan

by Gary Honig / Thursday, May 17, 2018 / Published in Banking / Business Capital / Loans, Creative Capital Associates, Gary Honig
As a business owner looking for help financing part of your business, it is important to understand the fundamental differences of a bank line of credit and a term loan. They are used specifically for different purposes. Applying for the wrong type of loan may cause problems later on as the business grows.

A line of credit (LOC) is usually considered a short-term loan. The payments are interest-only, based on the outstanding funds in use. As you draw down on the line, using it to pay bills, interest is accrued monthly. The line is like an open checkbook for ‘use as needed’ purposes. The critical nature of the LOC is the necessary discipline to put funds from income back to pay down the line. There should be a constant flow of money coming from the line to pay bills and then replenished as customers pay for your goods or services.

When applying for the LOC, the bank is typically looking for historical cash flow. What does the revenue look like? Is it steady or fluctuates wildly? The bank will take a conservative view of the existing accounts receivable to get a baseline. For the most part a bank will not be able to consider potential new business when considering a LOC credit limit.

A term loan is a fixed funding transaction. It is a one-time loan based on cash flow of the business plus certain collateral pledged against the loan. The loan should be used for a major expenditure rather than daily cash flow for the business. All the proceeds are available at the time of closing, not like a line where funds are circulating. The payments are interest and principal based on the amortized terms of the loan. (For example, a $100,000 loan at 8% interest over a 5-year term.)

The bank will assume an ownership position on the collateral, meaning the collateral cannot be transferred or liquidated. The historical cash flow of the business is critical to securing a term loan. The lender needs to see that loan payments will not have an adverse affect on the business operations. Term loans are used to purchase real estate, equipment, for build-outs, or franchising.

There are situations where a LOC that has been used to the credit limit is converted into a term loan, so the business will have to make monthly payments to pay off the old line. The problem becomes the business no longer can gain access to additional funds while the loan is outstanding. Access to capital is the lifeblood of any company, and lack of capital will starve a growing business.


Gary Honig is the President of Creative Capital Associates, a nationwide source of working capital since 1997. He can be found at http://www.ccassociates.com.

Tagged under: Bank Credit, Bank Loans, Line of Credit (LOC), Term Loan

About Gary Honig

What you can read next

What Are Asset Based Loans?
Seed, Angel, Venture. The Equity Ladder
The Gatekeeper: How Does the UCC Affect Your Ability to Borrow?

You must be logged in to post a comment.

Join Today! Get Involved In Government Contractors

  • Register To Become An Author or Thought Leader on Government Contractors
  • Create A Course
  • Create A Webinar
  • Contact Us To Discuss Your Interests

Latest Posts

US General Services Administration - HCaTS 8(a) - Human Capital Training Solutions

HCaTS-8(a): What is the Winning Score?

10:00 am 15 Jan 2020
Copies of the US Federal Budget

Federal Government Collects Record Individual Income Taxes in FY 2018; Still Runs $779B Deficit

2:33 pm 22 Oct 2018
FedFem Awards Honoring Women Owned Businesses in Government Contracting - LeadersNest

LeadersNest Announces the 2018 FedFem Awards Winners

1:55 pm 17 Oct 2018
L3 Harris Technologies

Harris Corporation and L3 Technologies To Merge Into L3 Harris Technologies

1:26 pm 15 Oct 2018
Weather Channel Video Footage of Hurricane Michael Disaster

Hurricane Michael Devastates Communities and Leaves +1 Million Without Power

11:20 am 12 Oct 2018
GovCon CRM and Marketing Automation Solution - Click To Learn More

GovCon Courses, Bootcamps, and Books


Government Contractors has created a section of learning opportunities for govcon professionals, including book recommendations and courses. Through our partnership with Catoctin College, you also can create courses for the govcon community.

Click to see courses and learning opportunities.

Discussion Forums

Government Contractor Discussions Forum

Join in the debate in our GovCon Discussion Forums. We seek to include a wide variety of topics important to b2g professionals. Registration is free. Some threads are "invitation only" due to topic sensitivity / privacy.

Click here to view the GovCon Discussion Forums.

GET OUR WEEKLY GOVCON RECAP

Subscribe to our weekly GovCon Recap. Don't get overloaded by daily emails. Get one recap that covers everything you need.

GETTING STARTED

  • How To Get Started
  • Basics of Government Contracting
  • Government Agency Profiles
  • Types of Contracts
  • B2G Business Resources
  • Federal Contracts
  • Networking and Events
  • Submit A Company Profile

POPULAR COURSES

  • VIEW ALL COURSES
  • How To Create Successful B2B and B2G Webinars (Course and One On One Consulting)
  • Inbound Marketing 101
  • Content Marketing 101
  • LinkedIn for B2B and B2G Networking 101
  • Search Engine Optimization for Government Contractors 101
  • E-mail Marketing 101
  • Social Media 101
  • Small Business Marketing To The Government 101
  • Introduction To B2B and B2G Advertising
  • How The Military Uses Instagram
  • Register / Become A Thought Leader
  • Submit News or Press Release
  • List An Event
  • Advertise
  • Ask A GovCon Expert
  • Contact Us

Web Hosting

  • Commenting and Discussion Forum Policy
  • Contributor Policy
  • Privacy Policy
  • DMCA: Request Content Removal
  • Terms of Use and GDPR Notice

Copyright © 2019 by Government Contractors LLC. All rights reserved.

TOP