How a term loan works
With a term loan you receive the full amount upfront and repay it in fixed payments over a set period. You know exactly what you owe and when, which makes budgeting simple.
How a line of credit works
A line of credit works like a business credit card with better terms. You draw what you need, repay it, and the available balance refills. Interest applies only to the outstanding balance.
Side-by-side comparison
Here is how the two options compare on the factors that matter most:
- Best for: term loan — expansions, renovations, big purchases; line of credit — cash flow gaps, emergencies, opportunities
- Interest: term loan — on the full amount; line of credit — only on the drawn balance
- Payments: term loan — fixed and predictable; line of credit — vary with usage
- Reuse: term loan — no, you reapply; line of credit — yes, it revolves
Which should you choose?
If you can name the project and its price, a term loan is usually the better fit. If you need a cushion you may or may not use, pick a line of credit. Not sure? A Kacu specialist can review both after you prequalify.
Frequently asked questions
Is a line of credit cheaper than a term loan?
It can be if you only draw small amounts for short periods, because you pay interest only on what you use. For large, long-term borrowing a term loan is often cheaper.