Business Line of Credit vs. Term Loan: Which One’s Right for Your Needs?

When your business needs a cash boost, you’ve got options — but choosing the right one can make all the difference. Two of the most common (and often confused) funding tools are business lines of credit and term loans.

They both get you money — but they work very differently. This guide breaks them down so you can pick the best fit for your needs, whether you're filling a gap or fueling major growth.

When comparing a business line of credit vs. term loan, it’s important to understand which suits your financial strategy.

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🔁 What’s a Business Line

of Credit?

A business line of credit (LOC) is kind of like a credit card for your business. You get access to a set amount of money (your credit limit), and you can borrow, repay, and borrow again — as needed.

Key features:

• Only pay interest on the amount you use

• Flexible draw amounts and timing

• Great for recurring or unpredictable expenses

Best for:

• Managing cash flow ups and downs

• Covering short-term expenses

• Buying inventory, handling payroll gaps, or covering slow-paying clients

Example: You get approved for a $50,000 LOC. You use $10k to cover a supplier delay. You only pay interest on that $10k — and once you repay it, you can use it again.

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📆 What’s a Business Term Loan?

A term loan gives you a lump sum upfront, which you repay over a set time (the "term") with fixed payments.

Key features:

• Fixed amount, fixed term, fixed monthly payments

• Predictable budgeting

• Often has a lower interest rate than a LOC

Best for:

• Major purchases or investments (equipment, renovations, etc.)

• Long-term growth plans

• Projects with a defined cost

Example: You borrow $80,000 to buy new machinery. You pay it back over 3 years in monthly installments — simple and predictable.

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🧠 Business Line of Credit vs. Term Loan: Key Differences Explained

Feature	Line of Credit	Term Loan
💵 Funds Received	Flexible, use what you need	One lump sum upfront
🔄 Repayment	Revolving – reuse after paying	Fixed schedule
📈 Interest	Only on amount used	On full loan amount
🛠️ Best For	Short-term needs, working capital	Long-term investments
🧾 Documentation	Often less strict	May require more paperwork
💳 Flexibility	High – draw when you need it	Low – one-time disbursement

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❓Which One Should You Choose?

Here’s how to decide:

👉 Go with a line of credit if…

• You need ongoing access to funds

• Your expenses are unpredictable or seasonal

• You want to borrow only what you need, when you need it

👉 Go with a term loan if…

• You have a specific, one-time expense

• You’re investing in growth (e.g., equipment, marketing, expansion)

• You want consistent monthly payments to plan your budget

Still not sure? Some businesses use both — a term loan for big investments, and a line of credit to handle everyday cash flow.

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💡 Final Thoughts: Funding That Fits Your Flow

Both lines of credit and term loans are great tools — but they serve different purposes. Don’t choose based on guesswork. Choose based on your goals, timeline, and how flexible your funding needs to be.

Still confused? No worries — that’s what we’re here for.

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✅ Let’s Make It Easy

Let CanfieldCap help you compare your options and get you pre-qualified fast. Whether it’s a term loan, a line of credit, or something in between — we’ll match you with smart, flexible funding that keeps your business moving.

[Talk to a funding expert →]