Head to head
Business line of credit vs Conventional business term loan
A line matches a recurring, temporary need. A term loan matches a one-time purchase with a long life. Using one for the other is among the most common and most expensive mistakes in small business finance.
| Business line of credit | Conventional business term loan | |
|---|---|---|
| Typical amount | $10,000 to $5 million | $25,000 to several million |
| Cost | Prime + 1% to 25%+ APR, by lender type | Prime + 1% to prime + 8%, credit-dependent |
| Time to funding | Same day to 4 weeks | 2-8 weeks |
| Term | Revolving, renewed annually | 1-10 years |
| Relative expense | $$$ | $$ |
Cost bands are editorial judgements expressed in APR-equivalent terms so products quoting factor rates and discount fees can be compared with products quoting interest. They indicate relative expense, not quotes. Methodology.
Business line of credit
Usually chosen when
- The need repeats: seasonal swings, receivables timing, inventory cycles
- You want availability more than you want cash today
- You will repay and redraw
Conventional business term loan
Usually chosen when
- The purchase is one-time and long-lived
- You want a fixed payment and a known end date
- The amount is large enough that annual renewal risk is unacceptable
Common questions
- Can I use a line of credit to buy equipment?
- You can, and it usually costs more over the life of the asset. A line is priced and structured for short-term use; equipment financing or a term loan matches the asset's life.
Other comparisons
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