Both are debt financing — but they're designed for different jobs. Term loans for defined, one-time capital investments. Lines of credit for ongoing, variable cash flow management.
The rule of thumb: use a term loan to invest in a specific asset or one-time use with a defined ROI. Use a line of credit to manage ongoing, variable working capital needs. A restaurant buying kitchen equipment ($80,000) needs a term loan with 5-year amortization. The same restaurant managing weekly payroll and food cost timing needs a revolving line of credit they can draw and repay monthly.
| Factor | Business Term Loan | Business Line of Credit |
|---|---|---|
| Structure | Fixed amount, fixed repayment | Revolving limit — draw/repay/redraw |
| Best Use | One-time investment, equipment | Recurring working capital, cash flow gaps |
| Cost | 8–25% APR (varies) | 15–40% APR on drawn balance |
| Repayment | Fixed monthly payments | Weekly or monthly, interest only on draw |
| Flexibility | Fixed once funded | Reusable as repaid |
| Term Length | 1–10 years | 12 months (often renewable) |
| Min Credit Score | 600–640+ | 600–620+ |
| Min Time in Business | 12 months typically | 6–12 months typically |
| Unused Capacity Fee | N/A | Sometimes (maintenance fee) |
One application reviews your eligibility across all products. No hard credit pull. No cost.
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