# Business Line of Credit vs. Loan

> A line of credit and a term loan both put capital to work, but they fit different jobs. One is a flexible, reusable safety net; the other is a lump sum for a specific, planned expense. Here's how they compare and how to pick.

## Key takeaways
- A line of credit is revolving credit you draw, repay, and reuse — paying interest only on what you've drawn — while a term loan is a one-time lump sum repaid in fixed installments.
- Choose a line of credit for ongoing or unpredictable needs and a safety net; choose a term loan for a specific, one-time expense at a lower fixed rate.
- Neither is universally cheaper — lines often carry variable rates and draw or maintenance fees, while term loans charge interest on the full balance from day one.
- You can use both: a term loan for a major project and a line of credit for everyday flexibility, provided your cash flow can support both.

## The quick version

A **business line of credit** is revolving credit: you get a limit, draw what you
need, pay interest only on the drawn amount, and the limit replenishes as you
repay. A **term loan** is a one-time lump sum repaid in fixed installments over a
set period.

Think of a line of credit as an on-demand cushion for ongoing or unpredictable
needs, and a term loan as funding for a single, known expense.

## How each one works

### Business line of credit

- You're approved for a **credit limit** and draw against it as needed.
- You **pay interest only on what you've drawn**, not the full limit.
- As you repay, the available credit **replenishes** so you can use it again.
- Rates are often **variable**, and some lines carry draw or maintenance fees.

This flexibility is the whole point — it's ideal for covering gaps, seasonal
swings, and surprises without re-applying each time.

### Term loan

- You receive a **single lump sum** up front.
- You repay it in **fixed installments** over a set term.
- Rates are commonly **fixed**, making payments predictable.
- Interest accrues on the **full balance** from the start.

A term loan shines when you know exactly how much you need and what it's for, and
you want a clear payoff date.

## When each one wins

**A line of credit wins when:**

- Your needs are **ongoing or unpredictable** (payroll gaps, inventory, slow
  seasons).
- You want a **safety net** available before you actually need it.
- You'd rather **borrow in small pieces** and avoid paying interest on idle funds.

**A term loan wins when:**

- You have a **specific, one-time expense** (a renovation, an acquisition, a big
  marketing push).
- You want a **lower fixed rate** and a predictable monthly payment.
- You're financing something with a **longer payoff horizon**.

## Cost and trade-offs

Neither is universally cheaper — it depends on usage. A line of credit can be
cost-efficient because you only pay for what you draw, but variable rates and
fees can add up if you keep a balance for a long time. A term loan often has a
lower, fixed rate, but you pay interest on the entire amount whether or not you
use it all right away.

Watch for:

- **Variable vs. fixed rates** — lines often float; loans are often fixed.
- **Fees** — draw, maintenance, or origination fees can affect the real cost.
- **Discipline** — a revolving line is easy to lean on; treat it as a tool, not a
  permanent crutch.

## Which should you choose?

If you want **flexibility and a buffer** for the ups and downs of running a
business, choose a **line of credit**. If you have a **defined, one-time
investment** and want the lowest predictable cost, choose a **term loan**.

And remember it isn't always either/or: pairing a term loan for a major project
with a line of credit for everyday flexibility is a common, sensible setup —
provided your cash flow can support both comfortably.

### Want to see what you qualify for?

Tell Hoss Capital about your business once, and we'll match you with lenders
offering the line of credit, term loan, or both that fit your situation — free,
and with no hard credit pull to start.

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