Securing business funding is a critical decision that can impact your company’s growth and financial health. Term loans and lines of credit are two of the most common options, but they serve different purposes and offer unique advantages. Understanding when to use each can help you make the best decision for your business’s needs and cash flow.
A term loan provides a lump sum of capital upfront, which you repay over a fixed period with consistent monthly payments. Loan amounts can go up to $2,500,000 with repayment terms of up to 3 years and rates starting at 1.15%.
Term loans are ideal for large, one-time expenses such as business expansion, purchasing equipment, or funding a major project. The fixed repayment schedule allows you to plan ahead with predictable monthly payments, making it easier to manage long-term expenses.
“Term loans provide the capital you need for major business investments with the stability of fixed payments.”
However, because term loans provide a large sum upfront, they typically require a strong credit history and financial track record to qualify. They are best suited for businesses that need a significant amount of capital and are comfortable with long-term repayment commitments.
A business line of credit gives you flexible access to funds, allowing you to draw from your credit line as needed — up to a limit of $250,000. Unlike a term loan, you only pay interest on the amount you use, and the funds become available again once repaid.
Lines of credit are perfect for managing short-term expenses, handling cash flow gaps, and covering seasonal fluctuations. Since you can borrow and repay funds repeatedly without reapplying, it gives you the flexibility to handle unexpected costs and keep your business running smoothly.
“A business line of credit gives you financial flexibility with ongoing access to capital when you need it.”
Lines of credit usually have lower borrowing limits than term loans, and the interest rates can vary based on market conditions. They are best suited for businesses that need to manage working capital rather than fund large, one-time expenses.
• Choose a term loan when:
• You need a large sum of capital for a long-term investment.
• You prefer fixed monthly payments for predictable budgeting.
• You have a strong credit history and financial stability.
• Choose a line of credit when:
• You need ongoing access to funds for working capital.
• You want flexibility to borrow and repay as needed.
• You need to manage cash flow or cover short-term expenses.
A term loan provides stability and long-term funding for major expenses, while a line of credit offers flexibility for managing day-to-day business needs. Choosing the right option depends on your business’s financial health, cash flow patterns, and future goals. Understanding the differences between term loans and lines of credit ensures you have the right financial tools to support your business’s growth.
