Understand the key differences between these business financing options and when each may be the right fit.

Access to financing can help your business manage cash flow, seize growth opportunities and invest in long-term success. Two common financing options are a business line of credit and a business term loan. While both provide access to capital, they serve different purposes.

Business line of credit: Flexible funding when you need it

A business line of credit gives your business access to a predetermined amount of funds that can be borrowed, repaid and borrowed again as needed.

Because you only draw funds when needed, a line of credit can be a valuable tool for managing short-term financing needs and cash flow fluctuations. Businesses commonly use a line of credit to purchase inventory, cover payroll, manage seasonal expenses or address unexpected costs.

For example, if your business has a $100,000 line of credit and uses $60,000, the remaining $40,000 stays available. As you repay the borrowed amount, those funds become available to use again.

Business lines of credit often feature variable interest rates that are tied to a benchmark such as the prime rate.

Business term loan: Financing for larger investments

A business term loan provides a lump sum of money that is repaid through scheduled payments over a set time limit.

Business term loans are often used for significant investments that support long-term growth, such as purchasing commercial real estate, acquiring vehicles or equipment or funding expansion projects. Depending on the loan type, the asset being purchased may serve as collateral.

Because these loans are designed for specific purchases and have defined repayment schedules, they may offer lower interest rates than a business line of credit.

Which option is right for you?

The best choice depends on how you plan to use the funds.

A business line of credit may be the better fit if you need:

• Ongoing access to funds
• Help managing cash flow
• Flexibility to cover short-term business expenses

A business term loan may make more sense if you need:

• Financing for a major purchase or investment
• Predictable monthly payments
• Funds for long-term business growth

Our business services team can help you evaluate your needs and determine which financing solution best supports your business goals.

 

All loans subject to approval. Rates, terms, and conditions are subject to change and may vary based on credit worthiness, qualifications, and collateral conditions.