Business Loan vs. Line of Credit

Compare key features to understand which financing option might suit your business needs.

Feature	Business Loan (Term Loan)	Business Line of Credit (LOC)
Funding Structure	Receive a fixed amount of money (lump sum) upfront.	Access to a pre-approved credit limit; draw funds as needed (revolving).
Repayment	Fixed, regular installments (e.g., monthly) over a set term. Includes principal and interest.	Variable payments based on the amount drawn. Often requires minimum payments. Principal is replenished as you repay.
Interest Charged On	The entire loan amount from the beginning.	Only the amount you have drawn/borrowed.
Interest Rates	Often fixed rates, providing predictable payments. Can be variable.	Often variable rates, which can fluctuate with market conditions. Can be fixed.
Access to Funds	One-time disbursement after approval.	Draw funds anytime up to the credit limit during the draw period.
Typical Use Cases	Large, specific purchases (equipment, real estate) Business expansion or acquisition Long-term investments Starting a new business Refinancing existing debt	Managing short-term cash flow gaps Covering unexpected expenses / Emergencies Seasonal inventory purchases Ongoing operational costs (e.g., payroll) Flexibility for uncertain needs
Typical Term Length	Defined repayment period (e.g., 1-10+ years).	Defined draw period (e.g., 1-5 years), often renewable. Repayment period may follow.
Common Fees	Origination fees Application fees Prepayment penalties (sometimes) Late payment fees	Annual fees Draw fees (per withdrawal) Inactivity fees Late payment fees
Flexibility	Low (fixed amount, fixed schedule).	High (borrow as needed, repay/redraw).
Approval Difficulty	Can be stricter, often requires collateral, good credit history, and established business track record.	Can sometimes be easier to qualify for than term loans, especially for short-term needs. May still require personal guarantee or UCC lien.