Guide
Business Line of Credit vs Term Loan
Revolving capacity for recurring gaps, fixed debt for one-time purchases. Matching duration to purpose.
June 24, 2025 · 6 min read
How each one behaves
A line of credit provides a limit you draw against, repay, and redraw, with interest on the outstanding balance only. A term loan disburses once and amortizes on a fixed schedule.
The line is a tool for recurring, unpredictable timing gaps. The loan is a tool for a known, one-time cost.
Matching duration to purpose
Payroll timing, inventory cycles, and receivable gaps are recurring and short — the line fits. A vehicle, a build-out, or an acquisition is long-lived — term debt fits, ideally with the term matched to the useful life of the asset.
Financing a five-year asset with six-month capital is the most common structural mistake in small-business finance.
Cost and qualification differences
Lines carry draw fees or maintenance fees and often require stronger credit and reporting; term loans price on credit and collateral. Revenue-based capital sits alongside both as the fastest option when neither is available in time.
Most established businesses eventually want a line for the cycle and term debt for the assets, with revenue capital reserved for speed.