Business Line of Credit vs Term Loan: Which One Fits?

Both put money in your hands, but they work very differently. Choosing the right one can save you money and match your finance to the way your business actually runs.

What is a term loan?

A term loan is a lump sum you borrow once and repay over a set period with regular, predictable repayments. It’s ideal for a specific, one-off purpose — buying equipment, funding a fit-out, or a defined project — where you know exactly how much you need.

What is a line of credit?

A business line of credit is a revolving facility with an approved limit. You draw what you need, when you need it, repay it, and draw again. Crucially, you only pay interest on the balance you’re actually using. It’s built for flexibility and ongoing or unpredictable needs.

When a term loan wins

• You have a single, known purchase or project;
• You want fixed, predictable repayments for budgeting;
• You’re borrowing a larger amount over a longer period.

When a line of credit wins

• Your cash-flow needs come and go (seasonal swings, stock cycles);
• You want a safety net for surprises without borrowing a lump sum;
• You value only paying interest on what you use.

Can you have both?

Plenty of businesses do — a term loan for a big planned investment, and a line of credit sitting behind it for day-to-day flexibility. The right mix depends on how steady your income is and what you’re funding.

The bottom line: Match the tool to the job. Fixed need, fixed loan. Flexible need, flexible facility.

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