Loan vs Line Of Credit. One Buys A Thing. One Bridges A Gap. Mixing Them Up Bleeds You.

How Each One Actually Works.

One Question Decides It.

Is this a one-time asset or a recurring gap? Equipment, a build-out, an acquisition, a vehicle — a defined purchase with a defined payoff wants a term loan: the cost is known the day you sign. A gap that opens and closes every cycle — the 45 days between invoicing and getting paid, the inventory bought before the season sells — wants a line: you pay only for the days you’re actually short. Financing a permanent need with a line, or a recurring gap with a lump sum, is how businesses quietly bleed out.

Where Each One Bites.

Lines: variable rates reprice on you; draw fees, inactivity fees, and annual fees hide in the agreement; lenders can cut or freeze a line in a downturn — exactly when you need it; and a line that stays fully drawn for a year is a term loan at a worse rate. Loans: prepayment penalties punish paying early; the payment runs whether the asset performs or not; and a loan sized for optimism instead of the actual purchase is debt carrying nothing. Read the fee schedule on both before the rate.

What It Takes To Qualify For The Cheap One.

Bank lines and term loans want the same file: an owner’s personal score around 680+ (700+ for the best terms), low utilization, few recent inquiries, two years of business history, revenue documentation, and a banking relationship. Lines are often the harder of the two — renewals re-underwrite you every year. Online lenders go lower on all of it, at speed’s price. Getting a specific business to the bank-tier bar is the funding-readiness work; getting the right product once you’re there is the funding service.