A term loan funds a project. A line covers a pattern. Using the wrong one is how businesses end up paying interest on money sitting idle — or scrambling for cash they already borrowed and spent.
| Term loan | Line of credit | |
|---|---|---|
| Disbursement | Lump sum at close | Draw as needed |
| Interest | On the full balance | On the drawn balance only |
| Payment | Fixed monthly | Varies with usage |
| Term | 12–60 months | Revolving, renewed annually |
| Amount | $25K – $500K | $10K – $750K |
| Best use | Renovation, acquisition, one large purchase | Inventory, payroll swings, seasonality |
Fund projects with term debt and fund cycles with a line. Many businesses should hold a line permanently and only take term debt when there is a specific asset or project behind it.
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