When you need money to invest in your business, choosing the right financing method can be tough. There are many different ways to get the money you need ranging from acquiring investors to securing a traditional business loan. While there are dozens of options out there, two of the best and most flexible methods are lines of credit and traditional business loans. Here’s what you need to understand about both options so you can make the best choice for your business.

Lines of Credit (LOCs)

LOCs work a lot like a business credit card. You apply for the line through your preferred lender. Most businesses choose to work with their banks while others take the time to research financial institutions that specialize in low-interest LOCs. Regardless of where you get the credit line, the lender will consider your credit score, the amount of outstanding debt your business has and your overall ability to repay what you borrow.

If they approve your application, they’ll issue you a credit line with a maximum amount of money you can spend. You’re free to use however much you need at any given time, for any reason, as long as you repay what you use according to the lender’s terms. This is one of the most flexible ways to finance your business.

Business Loans

Traditional business loans are best for businesses with a proven history of steady and growing profits and stellar credit scores. You’re able to apply through your bank or other private lender and will receive the money in a single lump sum if they approve your application. Depending on the terms of the loan, you may only be able to use the money for specific purposes, but your lender will make sure you understand those restrictions prior to giving you the money.

Once you receive the money, you’ll be required to repay the loan in full by the end of the loan term. If you don’t, your credit score will drop and the bank may be able to take possession of any items you put up as collateral. That said, the interest rates on business loans are typically lower than those found on LOCs. If you’re confident in your ability to repay the loan and know exactly how you’ll use the money at the time of your application, traditional business loans may be a better choice.

Ultimately, both lines of credit and traditional business loans are great ways to get the money you need. Think about the way you’ll use the funds to choose the best financing option for your business.