Line of Credit vs. Term Loans: Compare Business Funding
Business line of credit vs. term loans — revolving working capital vs. lump-sum fixed-schedule financing.
Business Line of Credit: A revolving business line of credit lets you draw funds as needed up to a set limit and only pay interest on what you use. Business Term Loan: A business term loan delivers a fixed lump sum repaid over a set schedule with predictable monthly payments — the classic business funding structure.
Business Line of Credit vs. Business Term Loan — side by side
| Business Line of Credit | Business Term Loan | |
|---|---|---|
| Typical amount | $10,000 – $500,000 | $25,000 – $2,000,000 |
| Typical term | Revolving (12 – 24 month draw period) | 1 – 10 years |
| Rate | 8% – 36% APR | 7% – 30% APR |
| Minimum time in business | 6 months | 1 year |
| Minimum credit score | 580+ | 600+ |
Which is right for your business?
- Business Line of Credit tends to fit best when you need ongoing cash flow or seasonal inventory.
- Business Term Loan tends to fit best when you need expansion or equipment.
Frequently asked questions
Which is easier to qualify for — a line or a term loan?
Requirements are similar at most lenders — both evaluate credit score, revenue, and cash flow. Lines of credit may have slightly lower time-in-business minimums (6 months vs. 1 year at some lenders). Term loans for larger amounts may require collateral that a small line would not.
Can I use a line of credit for a one-time large purchase?
Yes, but it is often suboptimal. Carrying a large balance on a revolving line eliminates the interest-savings benefit of the revolving structure. If you need $100K for a specific investment, a term loan structured for that amount and duration is usually more economical.
