The main distinction is access to funds: a term loan delivers a defined lump sum, while a line of credit lets you draw within an approved limit. The best fit depends on whether the need repeats or happens once.
How you access and repay funds
A term loan has a specified repayment term after funds are advanced. A revolving line allows draws, and repaid principal may become available again subject to contract conditions. Availability can depend on account status, reviews and the lender’s rules.
Recurring expenses versus a one-time investment
Consider a line for recurring inventory or cash-flow gaps when the need changes over time. Consider a term loan for a defined project with a known budget. A credit limit is not the same as cash already borrowed; only draw what the business needs.
Compare more than the interest rate
Lines may include draw, maintenance or unused-line fees. Term loans may include origination fees or prepayment terms. Each draw may have its own repayment schedule. Ask whether rates are fixed or variable and how payment amounts can change.
A practical decision checklist
Compare the net cash received, total repayment, fees, collection frequency, collateral or guarantees, and early-payoff provisions in writing. Approval, pricing and timing depend on the provider and your business; no guide or estimate is a funding offer.
Questions business owners ask
Do I pay interest on the entire line?
Interest commonly applies to amounts drawn, but other fees may apply to the account or unused limit. Review the specific agreement.
Can a credit line be withdrawn?
Lenders can limit future availability under the contract. Do not treat unused credit as a guaranteed cash reserve.