A line of credit and a term loan are two of the most common financing structures, and they behave very differently day to day.
The core difference
A term loan gives you a single lump sum up front that you repay on a fixed schedule. A line of credit gives you access to a limit you can draw from as needed, repay, and reuse. One is a fixed commitment; the other is flexible, standing capacity.
When a line of credit tends to fit
Lines of credit often suit recurring or uneven needs, like covering a slow season, bridging receivables, or handling unexpected expenses, because you only draw and pay for what you use.
When a term loan tends to fit
Term loans often suit a specific, planned purchase with a known cost, where predictable fixed payments make budgeting easier over a defined horizon.
Side by side
| Line of credit | Term financing | |
|---|---|---|
| Access | Draw, repay, and reuse up to a limit | One advance at closing |
| Best for | Recurring or seasonal needs | A defined, one-time investment |
| Interest | Generally on the drawn balance | On the full outstanding balance |
| Repayment | Flexible against the balance drawn | Level amortizing payments |
| Re-applying | Not required for later draws | Required for additional capital |
| Availability | Restores as you repay | Does not revolve |
A simple decision frame
- The need repeats or is seasonal
- You want to reuse availability as you repay
- Draw timing is uncertain
- The amount and purpose are fixed
- You want predictable, level payments
- The asset or project has a defined useful life
Related financing
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