A business line of credit is for money you need for weeks or a few months and pay back when the cash comes in; you draw what you need, pay interest only on the drawn balance, and the line is there again next time. A term loan is for money that buys something that lasts years; you get the full amount once and pay it down on a fixed schedule. Payroll through a slow season, inventory ahead of a big order, a walk-in or a compressor that dies on a Friday, a 60-day gap between finishing a job and getting paid for it, those are the line. A second location, a $400K imaging unit, buying out a competitor, a new kitchen or a new bay, those are the term loan. The mistake that costs the most money is using one for the other.
Here's the math that makes it obvious. A three-unit restaurant group needs $300K to stock up and staff up for a six-month peak season. On a line of credit, it draws $300K, carries it for six months, and pays interest on the balance for those six months, then pays it back and the cost stops. On a five-year term loan, it takes the same $300K and makes sixty payments, including fifty-four months of payments on money it only needed for six. Same $300K, same business; one of them pays for the money four and a half years longer than it was useful. That's the difference between a season that paid for itself and a loan payment that's still coming out of the account three Januarys from now. Run it in the line of credit calculator with the seasonal-inventory preset and the gap is bigger than most owners guess.
how long a business pays for the same $300K of seasonal prep on a line of credit versus a five-year term loan
— Interest-only draw held for one season vs a standard amortizing term; model it in the line of credit calculator
What Each One Is Built For
A line of credit is a limit, not a loan. A $500K line means you can draw up to $500K whenever you want, pay interest only on what's out, pay it down when revenue comes in, and draw again. Revenue-based lenders size a line off four to six months of business bank statements, roughly 10 to 15 percent of annual gross, and fund it in one to five days. For a business doing $4M a year, that's a $400K to $600K line, pre-approved and sitting there for the next slow month, equipment failure, or cost spike. What that buys you is the ability to say yes to the big order, keep the crew you trained, and cover the surprise without a scramble. Business line of credit is the product page.
A term loan is a fixed amount for a fixed purpose over a fixed period. $900K for a build-out, $1.9M to buy a competitor's three units, $250K for a hood-and-line replacement. Revenue-based term loans are underwritten the same way, on deposits and cash flow, and fund in two to seven days; the difference is the payment schedule is set at funding and the money is meant to be spent once. What that buys you is a payment you can plan around for five years while the thing you bought earns its keep. Term loans is the product page.
The test is one question: when the money's job is done, is the thing you bought still there? Inventory gets eaten. Payroll gets worked. A second kitchen is still cooking in year five. Line for the first two, term loan for the third.
Bottom line:
Line of credit: short need, repaid from the next cycle, interest only on the drawn balance. Term loan: long-lived purchase, fixed payments, spent once. Most growing businesses need both, for different things, from different lenders.
Where Owners Get It Wrong
Taking a term loan to cover a 60-day cash gap. This is the expensive one. The payroll month that lands before the catering deposits clear, the contractor who's finished the job and is waiting on net-60, the practice whose insurance reimbursements run 45 days behind. Each is a two-month problem. A five-year term loan solves it, then charges for it for another fifty-eight months. The $40,000 mistake is a real number from a real file: an owner took a term loan to cover a two-month gap and paid four years of interest on it. That's $40,000 that would have been a hire, a piece of equipment, or a quieter year.
Using a line of credit for a build-out. The opposite error. A $900K second location drawn on a line sits as a balance you're paying interest-only on with no amortization pushing it down, and it eats the line you were supposed to have for the slow season. Build-outs and acquisitions go on a term loan so the payment is fixed and the line stays free for what the line is for.
Taking a merchant cash advance for either. Daily draws from the card batch on a thin-margin business (restaurants at three to five percent, retail, auto repair) is the one structure that can turn a slow season into a closed business. Working capital vs. merchant cash advance has the comparison; a revenue-based line is the fixed-payment version of the same speed.
What a Lender Sees in the Statements
Seasonal deposits, a 30 percent swing between the best month and the slowest, a big invoice that lands every ninety days. To a bank that reads volatility, that's risk. To a lender that underwrites your industry every day, it's the shape of the business, and the line gets sized to the trough, not the peak, so it's there when the trough comes.
See which structure fits the need, and what it costs.
Start Your Funding Request →Three Real Files
A restaurant group buying three locations needed $2.4M and had a seller who wouldn't wait on a bank. The structure that funded in eight days was a $1.9M acquisition term loan on the group's trailing twelve months of deposits, plus $500K of working capital for the transition: three payrolls, vendor accounts re-papered, the first sixty days of inventory. The term loan bought the thing that lasts. The working capital carried the sixty days that don't. That file is here.
A dental group buying two locations needed $1.8M in the thirty days the seller gave it. Four operatories went on equipment financing at $450K, the practice value on a $1.15M term loan against the buying dentist's collections, and the 90-day transition on $200K of working capital. Three products, three lenders, funded in eight days, and the corporate buyer with the faster checkbook lost the practice to a dentist who was ready. That one's here.
A staffing agency needed $280K to make weekly payroll on a new contract while the client paid on net-60. Nothing was being bought; the money was a bridge. A working-capital line sized to the receivable, funded in days, drawn down and repaid as invoices cleared, so the agency could take the contract instead of turning it down. And that one. Operators in Colorado and Texas send us the same three shapes every week; the industry changes, the test doesn't.
Restaurant group, three units
Acquisition term loan + working capital
$2.4M
Three locations acquired in 8 days; the term loan bought the units, the working capital carried the transition
See the full case →How Fast, and What It Takes
Both products fund on the same file: four to six months of business bank statements, consistent deposits, no pattern of overdrafts, and six-plus months of operating history. A line of credit funds in one to five days and sits unused until you draw. A term loan funds in two to seven days. Neither needs a tax return to start. What slows either one down is a commingled account, so if personal spending runs through the business's deposits, separate them before you apply, not after. What lenders look at when you apply covers the file in detail.
Frequently Asked Questions
Can a business have a line of credit and a term loan at the same time?
Yes, and most growing businesses should. The line covers operating swings; the term loan covers the build-out or acquisition. They're usually from different lenders, each pricing the piece it writes every day, which is the whole idea behind capital stacking.
How big a line of credit can my business get?
Revenue-based lenders size a line at roughly 10 to 15 percent of annual gross revenue off bank statements. A business doing $4M a year lands around $400K to $600K. Strong deposits and a clean seasonal pattern push toward the top of that range.
Which one is faster, a line of credit or a term loan?
About the same. A line funds in one to five days, a term loan in two to seven, both on bank statements. The line has one advantage: once it's open, a draw is same-day, so the slow-season money is already approved before the slow season starts.
What credit score do I need for a business line of credit?
Revenue-based lenders read the deposits first. Most want 600-plus for a line and read the statements harder than the score. A 650 with clean deposits is a better file than a 750 with a commingled account.
When should I set up a line of credit?
In the strong season, when the statements look their best and you don't need it. A line opened in June and drawn in January is priced on June's deposits. A line applied for in January is priced on January's.
Bobby's Take
Every owner I've watched get into trouble with financing did one of two things: borrowed long for a short problem or borrowed short for a long one. The product isn't complicated. The discipline is. Know which bucket the need is in before you ask anyone for money, and ask for the line when you don't need it, so it's there when you do. The businesses that grow through a slow season aren't the ones with the best credit. They're the ones that had the line open before the season turned.
See which structure fits the need
One soft pull, no commitment. Specialist lenders read the deposits, not the calendar.
