Business Line of Credit vs Term Loan

Business Line of Credit vs Term Loan: Which Is Right for You?

When it comes to funding your business, two of the most common options are a business line of credit and a term loan. Both serve important purposes, but they work very differently. Understanding the key differences can help you choose the right product for your situation.

What Is a Business Line of Credit?

A business line of credit gives you access to a revolving pool of funds that you can draw from as needed. You only pay interest on the amount you use, and once you repay it, the funds become available again. This makes it ideal for managing cash flow gaps, covering unexpected expenses, or handling seasonal fluctuations.

What Is a Term Loan?

A term loan provides a lump sum of capital upfront that you repay over a fixed period with regular payments. Term loans are best suited for specific, one-time investments such as equipment purchases, expansion projects, or real estate acquisitions.

Key Differences

• Access to funds: Lines of credit are revolving; term loans are a one-time disbursement
• Repayment: Lines of credit have flexible repayment; term loans have fixed schedules
• Interest: Lines of credit charge interest only on drawn amounts; term loans charge on the full balance
• Best for: Lines of credit suit ongoing needs; term loans suit large planned purchases
• Rates: Term loans typically offer lower rates; lines of credit may have variable rates

Which Should You Choose?

If you need flexible, ongoing access to capital for day-to-day operations, a line of credit is likely the better fit. If you have a specific project or purchase in mind with a clear cost, a term loan may offer better rates and predictable payments.

Explore Your Options

FAAS Funding offers multiple capital programs for business owners. Whether you need a line of credit, term loan, or another funding solution, start with a quick eligibility review.

Check Your Eligibility | Explore Programs | Business Lines of Credit