Match the tool to the need
A term loan delivers a lump sum repaid on a schedule — right for equipment, acquisitions and build-outs. A line of credit lets you draw and repay as needed — right for seasonal inventory, payroll timing or waiting on receivables.
How the costs differ
Term loans charge interest on the full balance from day one. Lines charge interest only on what you draw, but may add unused-line or annual fees and usually float with Prime.
The renewal risk
Many lines renew annually and can be reduced or not renewed if results slip — exactly when you might need them. Some require a "clean-up" period at a zero balance each year. Don't use a line to fund long-term assets.
A common pairing
Many established businesses use both: a term loan for the long-lived purchase and a modest line as a working-capital cushion.
Estimates only. Results vary. No guarantee of approval, rates or savings.
Examples use hypothetical numbers. Educational content, not financial, legal or tax advice. Profit Theory is not a lender; lenders set their own requirements and make all credit decisions.