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

When you need business financing, two of the most popular options are a business line of credit and a term loan. Both provide capital, but they work very differently — and choosing the right one can save your business thousands in interest.

The Quick Comparison

| Feature | Business Line of Credit | Term Loan | |---|---|---| | Funding structure | Revolving credit limit | One-time lump sum | | Interest | Only on what you draw | On full amount from day one | | Reuse of funds | Yes, as you repay | No | | Best for | Ongoing/seasonal needs | One-time purchases | | Repayment | Flexible, revolving | Fixed monthly payments |

See our detailed line of credit vs. term loan comparison.

What Is a Business Line of Credit?

A business line of credit is a revolving credit facility that lets you borrow up to an approved limit and repay only what you use. It works much like a credit card — you draw funds as needed, pay interest only on the outstanding balance, and can reuse the credit as you repay.

Best Use Cases

• Managing cash flow gaps
• Covering seasonal expenses
• Emergency funding
• Bridging accounts receivable

Explore business lines of credit in more detail.

What Is a Term Loan?

A term loan provides a lump sum of capital repaid in fixed installments over a set term — typically 1 to 5 years (sometimes up to 25 for real estate). You receive the full amount upfront and begin paying interest on the entire balance immediately.

Best Use Cases

• Equipment purchases
• Business expansion
• Real estate acquisition
• Large one-time investments

Learn more about term loans.

Interest and Cost Comparison

Line of credit: You pay interest only on the amount you draw. If your limit is $100,000 but you only use $20,000, you pay interest on $20,000.

Term loan: You pay interest on the full loan amount from the day you receive it.

Repayment Flexibility

• Line of credit: Flexible repayments — pay more when cash flow is strong, less when it's tight (as long as you meet minimums).
• Term loan: Fixed monthly payments make budgeting predictable but offer less flexibility.

How to Decide

Choose a line of credit if:

• You have ongoing or unpredictable funding needs
• You want to pay interest only on what you use
• You need reusable access to capital

Choose a term loan if:

• You have a specific, one-time purchase
• You want predictable fixed payments
• You need a larger lump sum for a defined project

Frequently Asked Questions

Which is cheaper — a line of credit or a term loan? It depends on your usage. A line of credit is cheaper if you only use part of it; a term loan may be cheaper for a large, one-time purchase because rates are often lower for fully drawn amounts.

Can I have both? Yes. Many businesses use a term loan for a major purchase and keep a line of credit for short-term liquidity.

How fast can I get either? Both can fund within 24–72 hours through ASBCLF's lender network. Apply here.

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Still unsure? Apply through ASBCLF and our advisors will help you compare both options from 75+ lenders.