Comparisons
Line of credit vs. term loan: which fits your business?
Credible Lending Editorial · Updated · 5 min read
The short answer
Choose a term loan when you have one expense with a known cost, like a buildout or an acquisition, and want fixed payments. Choose a line of credit when needs are recurring or unpredictable, like inventory or payroll gaps, and you only want to pay interest on what you use. Many businesses hold both.
How are they different?
| Line of credit | Term loan | |
|---|---|---|
| How you receive funds | Draw any amount up to your limit | One lump sum up front |
| Interest | Only on the drawn balance | On the full amount |
| Repayment | Weekly; credit restores as you repay | Fixed installments |
| Credible Lending term | Up to 24 months | Up to 60 months |
| Best for | Recurring or unpredictable costs | One-time investments |
When is a line of credit the better choice?
- Your costs arrive before your revenue, month after month.
- You want a safety net you don't pay for until you use it.
- You buy inventory in cycles and sell it through over weeks.
When is a term loan the better choice?
- You're funding a specific project with a quote or a price.
- You want one predictable payment for the life of the loan.
- The investment pays back over years, not weeks.
Can I have both?
Yes, and it's common. A term loan funds the new location; a line of credit handles the day-to-day swings once it's open. Your advisor can structure both so the combined payments fit your cash flow.