Business Line of Credit vs. Term Loan
A line of credit and a term loan are the two most common ways to fund a business — and they solve different problems. Picking the right one saves you money and headaches.
Here's how they compare, and how to tell which one your situation calls for.
| Line of Credit | Term Loan | |
|---|---|---|
| Structure | Revolving — draw what you need, repay, draw again. | One lump sum up front, repaid on a fixed schedule. |
| Interest | You only pay for what you draw. | Interest on the full amount from day one. |
| Best for | Ongoing, variable, or unpredictable needs. | A specific project with a known cost. |
| Flexibility | High — reuse the facility as needs change. | Lower — it's a one-time draw. |
| Payment | Varies with your balance. | Fixed and predictable. |
| Typical use | Payroll gaps, seasonal swings, surprise expenses, inventory. | Equipment, renovation, expansion, a defined purchase. |
Line of Credit is best for
- Managing day-to-day cash-flow swings
- Seasonal businesses with uneven revenue
- Owners who want capital on standby without paying for it idle
Term Loan is best for
- A single, well-defined project with a known price tag
- Owners who prefer a fixed payment and payoff date
- Larger one-time investments
If you know exactly what you need and why, a term loan is clean and simple. If your needs are ongoing or hard to predict, a line of credit gives you flexibility and you only pay for what you use.
Plenty of owners end up using both — and you don't have to decide alone. Tell us the situation and we'll point you to the right structure.
Common questions
Can I have both a line of credit and a term loan?
Yes — many businesses run a term loan for a big project and keep a line of credit on standby for cash-flow swings. They complement each other.
Which is cheaper?
It depends on usage. A line of credit only charges for what you draw, so it can be cheaper for short, intermittent needs; a term loan can be more cost-effective for a large, one-time expense repaid over time.
Let's find your best-fit funding.
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