Funding Guide
Term Loan vs Line of Credit
Both are powerful financing tools — but they solve different problems. Here's a simple breakdown to help you pick the right one for your business.
The short answer
Use a term loan when you need a lump sum for a specific, one-time investment (equipment, expansion, acquisition). Use a line of credit when you need flexible, ongoing access to capital for short-term needs like payroll, inventory, or smoothing out cash flow.
Side-by-side comparison
| Term Loan | Line of Credit | |
|---|---|---|
| Disbursement | Lump sum upfront | Draw as needed, up to a limit |
| Repayment | Fixed monthly payments | Pay interest only on what you use |
| Interest rate | Usually fixed | Usually variable |
| Best for | One-time, large investments | Cash-flow gaps & recurring needs |
| Term length | 1 – 10+ years | Revolving, renewed annually |
| Reusable | No — closes when paid | Yes — funds replenish as you repay |
When a term loan wins
- Buying equipment, real estate, or a vehicle
- Funding a build-out, renovation, or expansion
- Acquiring another business
- Refinancing higher-cost debt
When a line of credit wins
- Bridging gaps between invoicing and payment
- Buying seasonal inventory
- Covering payroll during slow months
- Having a safety net for unexpected expenses
Not sure which fits?
FundRight matches your business with the right product through top institutional banks. We'll review your goals and recommend the best path.