Question 1

Which option is cheaper for a one-time capital purchase?

Accepted Answer

A term loan is typically more cost-effective for large, one-time purchases because it often carries a lower fixed interest rate than a line of credit. Because you receive all the capital upfront, the total interest cost is predictable and spread across several years. For projects with a clear ROI and a definitive end date, the term loan structure prevents the higher variable rates often found in revolving credit.

Question 2

Is it harder to qualify for a line of credit or a term loan?

Accepted Answer

Lines of credit are generally more difficult to qualify for because lenders view revolving debt as a higher risk than a secured term loan. Most lenders require a minimum FICO score of 680 and at least two years in business for a traditional line. Term loans, particularly those backed by equipment or short-term revenue, may accept scores as low as 600 if the business shows strong monthly deposits.

Question 3

When does interest begin to accrue on each product?

Accepted Answer

On a term loan, interest begins accruing on the entire principal balance the moment the funds hit your bank account. With a line of credit, you only pay interest on the specific amount you have drawn, which can save thousands in costs if you only need occasional small infusions of cash. This makes the line of credit a powerful tool for 'just-in-case' financing.

Question 4

How do the repayment terms differ between the two?

Accepted Answer

Term loans usually offer longer repayment horizons, ranging from 1 to 10 years depending on the lender and collateral. Business lines of credit often require 'resting' the line (bringing the balance to zero) once a year or have shorter draw periods of 12 to 24 months. If you need a decade to pay back a large investment, a term loan is the superior structural choice.

Question 5

What are the risks if I cannot make payments?

Accepted Answer

Defaulting on a term loan usually triggers an immediate acceleration clause, making the entire remaining balance due at once. A line of credit default results in the immediate freezing of the facility and potentially a higher 'default rate' of interest applied to the outstanding balance. Both will significantly damage your business and personal credit scores and may lead to the seizure of pledged collateral.

Question 6

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

Accepted Answer

Yes, high-growth businesses often use both: a term loan for a specific expansion project and a line of credit to manage the increased payroll and inventory costs that come with that growth. Having both allows you to keep your long-term debt segregated from your operating expenses. BizBee often helps clients layer these products to create a comprehensive capital stack.

Question 7

When is a line of credit better for cash flow management?

Accepted Answer

You should choose a line of credit if your funding needs are unpredictable, such as covering payroll during a slow month or taking advantage of a sudden bulk-buy discount from a supplier. Because you only borrow what you need when you need it, it acts as a flexible insurance policy for your cash flow. If you don't use the funds, your primary cost is often just a small annual maintenance fee.

Question 8

How long does the funding process take for each?

Accepted Answer

Traditional banks take 30 to 90 days to fund either product, but online lenders in the BizBee network can fund term loans in 48 hours and lines of credit in as little as 24 hours. The speed often depends on the quality of your bookkeeping and the availability of your tax returns. Lines of credit may require more frequent financial updates to maintain the limit over time.

Requirement	Typical standard
Minimum FICO Score	600 (Term Loan) vs. 680 (Line of Credit)
Time in Business	6 Months (Term Loan) vs. 1-2 Years (Line of Credit)
Annual Revenue Floor	$100,000+ for most competitive rates
Documentation Required	4 months bank statements & most recent tax return
Collateral	Often unsecured for LOCs; varies for Term Loans
Funding Speed	1-3 business days through BizBee network

Term Loan vs. Line of Credit: Which is Right for You?

Key takeaways

Who this is for

What you need to qualify

Best funding options

Business Term Loan

Business Line of Credit

Working Capital Loan

SBA Loans

When this makes sense

When to be careful

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Common questions

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