Short answer: Choose a line of credit when your costs come and go and you want money on hand to draw as needed. Choose a term loan when you need one fixed amount for one purchase and want a set payoff schedule.
How each one works
A term loan gives you a lump sum up front. You pay it back in fixed payments over a set period, whether you spend all the money right away or not.
A line of credit gives you a limit to draw from. You only pay for what you draw, and as you pay it back, that money becomes available again.
When a line of credit makes more sense
- Your expenses are uneven, like payroll gaps, seasonal inventory or repairs
- You want a safety net for things you can’t predict
- You’ll need to borrow again later and don’t want to reapply each time
When a term loan makes more sense
- You know the exact amount, like buying a building or a large piece of equipment
- You want one fixed payment and a clear end date
- You won’t need to borrow again soon
Want to see what your business qualifies for? Answer a few quick questions or call (888) 707-0202.
A simple test
Ask yourself: “Will I need this money once, or over and over?” If it’s once, a loan is usually cleaner. If it’s over and over, a line of credit usually costs less in the long run because you’re not paying on money you aren’t using.
Can you have both?
Yes. Plenty of businesses use a term loan for a big, planned purchase and keep a line of credit for day-to-day cash flow.
Talk it through
If you’re not sure which way to go, tell us what the money is for. A Flex Credit Capital advisor will tell you straight whether a line of credit fits.
