A business line of credit and a term loan can both provide funding, but they serve different needs. The better fit depends on whether the business needs flexible access or a defined amount for a specific project.
How a business line of credit works
A line of credit allows draws up to an approved limit. Interest is generally charged on the amount used, and available credit may replenish as the balance is repaid. It can suit recurring or unpredictable short-term expenses.
How a business term loan works
A term loan provides a lump sum repaid over a scheduled period. It may be a better match for equipment, expansion, or another project with a known budget.
Questions to compare
- Is the need one-time or ongoing?
- Is the rate fixed or variable?
- How often are payments required?
- Are there draw, maintenance, origination, or early-payment fees?
- Is collateral or a personal guarantee required?
Review our small business financing guide to learn about these products and other funding paths.