The short answer
A term loan is a lump sum with fixed payments. A line of credit is a limit you draw on, repay and draw again.
That one difference drives everything else: how you are charged, how you plan your cash and how you should use the money. See each in full on our pages for term loans and business lines of credit.
Side-by-side comparison
Term loans win on predictability, and lines win on flexibility and interest saved on unused money.
| Feature | Term loan | Line of credit |
|---|---|---|
| Funds received | All at once | As you draw |
| Interest charged on | Full amount | Drawn balance only |
| Payments | Fixed schedule | Vary with balance |
| Reuse after payoff | No | Yes |
| Typical ROI Funder timing | 1 to 5 days | 24 to 72 hours |
A worked example with round numbers
The same $60,000 can cost very different amounts depending on how much you really use.
Illustrative example. A landscaping company needs $60,000 for a new truck and spring labor. With a term loan, it borrows $60,000 and pays interest on all of it for the entire term, even in months when cash is plentiful.
With a $60,000 line, it draws $35,000 for the truck deposit in March, $15,000 for payroll in April and repays $20,000 in June when invoices clear. Interest only accrues on what is outstanding on any given day. If the owner would have left $20,000 untouched, that money was cheaper to leave unborrowed.
When a term loan is the better tool
Pick a term loan for a defined, one-time purchase where you want a payment you can set and forget.
- Buying a vehicle, build-out or major equipment at a known price.
- Refinancing several smaller obligations into one payment.
- Funding a project with a clear start and end date.
- Locking in a cost so you can budget for it.
For equipment specifically, equipment financing uses the asset as backing, which can help the file.
When a line of credit is the better tool
Pick a line when you need a revolving buffer for timing gaps, seasonal inventory or unexpected costs.
- Invoices pay in 30 to 60 days but payroll is due weekly.
- Inventory purchases cluster before a busy season.
- You want an emergency reserve you pay for only if you use it.
- You need to bridge a repair or tax bill without a new application.
The discipline is to repay the line when cash comes in. A line used as permanent funding is a signal to revisit your margins. Our guide to cash flow management helps with that.
Costs, fees and fine print to check
Look past the headline rate to origination fees, draw fees, minimum draws and renewal terms.
Compare total payback, not rate alone. Lines can have maintenance fees, draw fees or a requirement to draw a minimum. Term loans can have origination fees deducted from the proceeds, which means you receive less than the face amount.
Ask what happens at renewal, whether you can prepay without penalty and what is pledged as security. Our rates guide shows how to convert any offer into a comparable monthly cost. ROI Funder shows the payback math on each offer before you decide.
Using both together without overextending
A term loan for the big purchase and a modest line for surprises is a common, sensible pair.
Many owners finance a major asset with a term loan, then keep a smaller line as a cushion. The risk is adding up the payments. Before you take the second product, total every monthly obligation and compare it with your weakest recent month of deposits, not your best.
A good ceiling for most businesses is a payment load you could carry through a slow quarter. If you cannot name that number, build a quick forecast first.
Which one to choose if you are still unsure
Start from what the money does, and the product usually picks itself.
If the money buys one thing with one price, take a term loan. If the money smooths timing, take a line. If you need an answer today, ask for both on the same application and compare total payback. ROI Funder will show you the options your file fits, along with monthly-equivalent payments, so you can decide with numbers in front of you.
What lenders look for on each. Lines usually ask for steadier deposits and a healthier balance history than a one-time term loan.
Because a line stays open, the funder keeps exposure to your business for longer, so they study how your account behaves month to month. Frequent overdrafts and thin balances hurt. Term loans focus more on whether the cash flow can carry a fixed payment for the whole term. Either way, ROI Funder looks for 6+ months in business and $20,000+ in monthly revenue, with 500+ FICO considered. See business loan requirements for the broader checklist.
Frequently asked questions
Which is cheaper, a term loan or a line of credit?
It depends on use. A line can be cheaper if you borrow less than the full limit or repay quickly. A term loan can be cheaper per dollar if you need the full amount for the whole term.
Can I turn a line of credit into a term loan?
Some funders let you convert a drawn balance into a fixed-payment loan. Ask before you sign whether that option exists.
Which is easier to get with moderate credit?
Both can be available at 500+ FICO through ROI Funder when revenue and time in business fit, though pricing will reflect risk.
How fast can I get the money?
Through ROI Funder, lines of credit typically fund in 24 to 72 hours and term loans in 1 to 5 days after approval and a complete file.