Key takeaways
- Term loans fit one planned expense; lines of credit fit recurring or unpredictable needs.
- Lines charge interest only on what you draw; term loans charge on the full balance.
- Many established businesses use both.
The short answer
Choose a term loan for a single, planned expense with a long payoff — an expansion, an acquisition, a renovation. Choose a line of credit for recurring or unpredictable needs — payroll timing, inventory, emergencies — where you want money available without paying for it until you use it.
How they compare
- Funding: term loan pays a lump sum once; a line lets you draw repeatedly up to a limit
- Interest: term loans charge on the full balance; lines charge only on what you draw
- Payments: term loans have fixed payments; line payments vary with your balance
- Amounts: term loans are often larger; lines are sized to recurring needs
- Terms: term loans run 1–5+ years; lines often have 6–24 month draw periods and renew
Can I have both?
Yes. Many established businesses use a term loan for a major investment and keep a line of credit open for day-to-day cash flow. Lenders will look at your total payment obligations when deciding on the second product.
Sources
BFG Funds is not a lender. We connect businesses with independent lenders and funding providers. Amounts, rates, terms and timing are set by each provider after its own review of your business (bank statements, revenue, time in business, credit profile and more) and are not guaranteed.