Term loan vs. business line of credit: choose by the job, not the headline rate

Use a term loan for a defined move

A term loan typically delivers one amount and follows a defined repayment schedule. It is easier to evaluate when the project has a price, a deployment date, and an expected contribution that lasts beyond payoff.

Borrowing the full project amount makes sense only when the business expects to use it. Interest and fees on unused lump-sum cash can erase the apparent simplicity.

Use a line for repeated uncertainty

A revolving line can fit inventory turns, receivable timing, seasonal gaps, and repairs when the amount and date of each need vary. The line’s value is access and reuse—not a reason to keep it permanently drawn.

Review draw fees, minimums, renewal, clean-up requirements, variable rates, payment calculations, and what happens if the line is reduced or not renewed.

Run the slow-month test

Model the term-loan payment whether or not the project performs. For the line, model interest and principal at the highest likely utilization, then ask what happens if revenue arrives late.

The right structure is the one the business can carry under a plausible downside—not only the one that funds the upside.

Compare the finish lines

A term loan usually has a scheduled final payment. A line can revolve, renew, amortize, or terminate under the agreement. Ask what creates a zero balance and whether access continues afterward.