A line of credit can fit recurring or variable short-term needs because capital may be drawn and repaid as needed. A term loan can fit a defined investment with a predictable cost and payoff period. The better choice depends on use, duration, repayment capacity, fees, guarantees, and total cost.
Match duration to the benefit
Avoid financing a long-lived asset with very short repayment unless cash flow comfortably supports it. Equipment or expansion may justify a longer term than inventory or a temporary receivables gap.
Compare more than the payment
Review total repayment, APR or annualized cost where provided, draw fees, origination costs, payment frequency, collateral, guarantees, prepayment, and renewal conditions.
Protect operating cash
Model the payment under slower sales, delayed receivables, and unexpected expenses. Funding should create or protect capacity, not consume the cash needed to operate.
What to do next
Use the numbers and documents from this guide to prepare a complete scenario. Final eligibility and terms depend on the lender’s current program, underwriting, property, borrower, business, and state.