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Term loan vs line of credit: which fits your business

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Both put working capital in your account. The difference is shape: a term loan is one lump sum on a fixed schedule, a line of credit is a limit you draw against as you need it.

01How a term loan works

You are approved for a set amount, it lands in your account, and you repay it on a set schedule — weekly or monthly — over a defined period. Through our funding partners these run from $25,000 to $5 million. The payment is predictable, which makes a term loan easy to plan around.

02How a line of credit works

You are approved for a limit — commonly up to $250,000 — and draw from it when you need it. You carry a cost only on what you have actually drawn, and as you repay, the room becomes available again. The limit sits there unused until a gap shows up.

03When the term loan is the right shape

• A single, planned expense: equipment, a build-out, an acquisition, a large inventory buy.
• You want one predictable payment you can budget against.
• The amount is larger than a line would realistically cover.
• The purchase pays back over months or years rather than weeks.

04When the line is the right shape

• Your cash flow is uneven — seasonal swings, or customers who pay on their own schedule.
• You need a cushion available but do not want to carry the cost of money you are not using.
• The need repeats: payroll timing, a short inventory gap, a slow receivable.
• You cannot name the exact amount yet.

05Comparing the cost honestly

Do not compare a term loan's total repayment against a line's rate — they are not the same unit. Price the term loan by total dollars repaid over its life. Price the line by what it costs to carry a realistic drawn balance for a realistic number of weeks, plus any fee for having the line open.

06You can run both

Plenty of businesses carry a term loan for the big planned move and keep a line open for timing gaps. What matters is the combined payment load against your deposits — that is the number a funder weighs, and the one that decides whether the next approval happens.