Line of Credit VS Business Term Loan

June 20, 2023

Line of Credit VS Business Term Loan
Business resources

A line of credit and a business term loan are both financial products that offer funding options for businesses, but they have distinct differences.

A line of credit is a flexible form of financing that provides businesses with access to a predetermined amount of money that can be drawn upon as needed. It functions similarly to a credit card, allowing the borrower to withdraw funds up to a certain limit and only pay interest on the amount used. This revolving credit line can be utilized multiple times, and as the borrower repays the borrowed amount, it becomes available for use again. It offers flexibility, enabling businesses to manage their cash flow fluctuations and address short-term funding needs.

On the other hand, a business term loan is a fixed sum of money provided to a business for a specific purpose and a defined repayment period. Unlike a line of credit, the loan is typically disbursed in a lump sum upfront, and the borrower must repay it over a predetermined term, usually with fixed monthly payments. Business term loans are commonly used for long-term investments such as purchasing equipment, expanding operations, or financing large projects. The interest rates and repayment terms are usually agreed upon at the outset and remain constant throughout the loan term.

In summary, a line of credit offers ongoing access to funds with flexibility in usage and repayment, while a business term loan provides a fixed lump sum for a specific purpose and requires regular fixed payments over a set period of time. The choice between the two depends on the business's financing needs and preferences.

Idea Financial offers both a revolving line of credit and business term loans, so you can decide which your small business needs. Apply today for a decision as soon as tomorrow.