Comparison
Business Line of Credit vs Term Loan
Choose a business line of credit for recurring or unpredictable short-term expenses because you only pay interest on what you draw. Choose a term loan for one-time investments with a defined cost — like expansion or equipment — because fixed payments over a longer term are typically cheaper.
Last updated October 23, 2026
| Line of credit | Term loan | |
|---|---|---|
| Funds | Draw as needed | Lump sum |
| Interest | Only on balance used | On full principal |
| Best for | Cash flow, inventory | One-time investments |
| Term | Revolving | 1–10 years |
| Fees | Draw/maintenance fees | Origination fee |
Ranges are industry estimates.
Choose line of credit when…
- Your expenses fluctuate
- You want a safety net
- You'll repay quickly
Choose term loan when…
- You have a single large purchase
- You want predictable payments
- You want a longer term
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Written by
BusinessFundingQuote Editorial Team
Small business finance writers
Reviewed by
Funding Review Desk
Reviewed for accuracy against current market practices
Rates and ranges on this page are typical market estimates for educational purposes, not offers. How we make money.