Is a line of credit easier to get than a term loan?

Sometimes, for smaller amounts. Lines of credit between $10K and $50K often have lighter documentation requirements than larger term loans, but rates can be higher and approved limits lower. Approval typically depends on time in business (most online lenders look for 6–24+ months), monthly revenue, and personal credit (usually 600+ for online lenders, 680+ for banks).

Can I have both a term loan and a line of credit at the same time?

Yes, and many established businesses do exactly this. Lenders evaluate your total debt service coverage when underwriting, so carrying both can affect approval for future financing. Each application can also result in a hard credit inquiry, which may temporarily lower your personal credit score.

Which has lower interest rates — a term loan or a line of credit?

Term loans usually carry lower stated APRs when comparing the same borrower profile, partly because the lender's risk is locked in upfront on a fixed schedule. A line of credit can still cost less in total dollars if you only draw small amounts for short periods, since interest accrues only on what's drawn.

What credit score do I need to qualify?

Most online lenders look for a personal credit score of 600+ for either product, while traditional banks and SBA-backed options typically want 680+. Score isn't the only factor — time in business, annual revenue, cash flow, and existing debt usually matter as much or more. Requirements vary by lender.

How fast can I get funded?

Online term loans and lines of credit can fund in 1–3 business days once approved. Bank lines of credit and SBA-backed term loans typically take 2–8 weeks. Speed usually trades off against rate — the fastest options tend to cost more.

Business Term Loan vs. Line of Credit: How to Choose (2026)

Choosing between a business term loan and a line of credit is one of the most common decisions small business owners face when seeking financing. Both products serve different purposes, and picking the wrong one can cost you more money than necessary. This guide breaks down the difference with a side-by-side table, an illustrative cost example, and a set of plain-English FAQs.

What Is a Business Term Loan?

A business term loan gives you a lump sum of capital upfront that you repay over a fixed period — typically 1 to 10 years — with regular payments of principal and interest. Business term loans are ideal when you have a specific, one-time need with a predictable return: buying equipment that will pay for itself, opening a second location, refinancing higher-cost debt, or funding a defined project with a clear scope.

The structure is disciplined by design. You know exactly what you owe, exactly when payments are due, and exactly when the loan is paid off. Rates are often lower than revolving products because the lender's exposure is fixed and amortizing — every payment reduces the balance.

Best for:

Large one-time purchases (equipment, vehicles, build-outs)
Predictable, fixed expenses with a known total
Businesses that want a set repayment schedule and a clear payoff date
Refinancing more expensive short-term debt into a longer, cheaper structure

What Is a Business Line of Credit?

A business line of credit works more like a credit card. You're approved for a maximum credit limit and can draw funds as needed, repay them, and borrow again. You only pay interest on what you actually use, and once you pay down a balance, that capacity becomes available again.

This makes a line of credit a natural fit for businesses with uneven cash flow — an HVAC company waiting on a commercial invoice, a retailer stocking up for a seasonal push, or a contractor covering payroll between project milestones. It's also useful as a financial safety net: an approved limit you don't have to draw on costs little to nothing to keep open with many lenders, but it's there if you need it.

Best for:

Managing short-term cash flow gaps
Covering unexpected expenses or emergency repairs
Seasonal businesses with fluctuating revenue
Bridging the gap between invoiced work and payment

Key Differences Side by Side

Feature	Term Loan	Line of Credit
Funding structure	One lump sum upfront	Revolving — draw, repay, redraw
Interest charged on	Full loan amount	Only the amount drawn
Repayment	Fixed schedule of principal + interest	Flexible, often interest-only minimums on drawn balance
Typical amount	$25K – $5M+	$10K – $500K (online); higher with banks
Typical term	1 – 10 years	Revolving (6–24 month renewal cycles common)
Typical rate range	Often lower stated APR	Often higher stated APR, lower total cost on small draws
Collateral	Sometimes required, especially over $250K	Often unsecured up to a limit
Best for	Planned, one-time investments	Ongoing or unpredictable operating needs

Ranges above are typical industry observations and vary by lender, credit profile, and loan size.

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An Illustrative Cost Example

The cleanest way to see the difference is to run the same need through both products. Numbers below are illustrative — actual rates depend on credit, revenue, time in business, and lender. They're meant to show the shape of the math, not a quote.

Scenario: A small business needs access to $50,000 to handle working capital over the next 12 months. There are two very different ways to use that $50K.

Use case A — full $50K needed upfront, repaid over 3 years (term loan fit): a 3-year term loan at, say, a 15% APR results in roughly $1,733/month and about $12,400 in total interest over the life of the loan. Predictable, fully amortizing.

Use case B — only $20K drawn for 6 months, then repaid (line of credit fit): a $50K line at a 20% APR, where the business only draws $20K and pays it off in 6 months, costs roughly $1,100 in interest. The remaining $30K of capacity sits unused at essentially no cost.

Same approved capital, very different bills — because in case B the borrower never paid for capital they didn't use. Flip the use case (full $50K needed for the full term) and the term loan usually wins on total cost because of the lower APR.

Which One Should You Choose?

Choose a term loan if you know exactly how much you need and what you'll use it for, and the asset or initiative will be paying back the loan for years. The fixed structure keeps you disciplined and the rates are usually lower.

Choose a line of credit if your cash needs fluctuate, you want a safety net, or you can't predict the size or timing of the spend. You'll pay a higher stated rate but only on what you actually use.

Many established businesses eventually use both — a term loan for growth investments and a line of credit for day-to-day cash flow management. If your credit history is limited, you may also want to start with options designed for thinner credit profiles while you build a track record.

The Bottom Line

There's no universally better option between a business term loan and a line of credit. The right answer comes down to what the money is for, how predictable the need is, and how long you'll carry the balance. If you're unsure which product fits your situation, compare both types of offers from multiple lenders in minutes — with no impact to your credit score to check rates.