Business lines of credit are revolving credit — borrow what you need, pay back when convenient, repeat. Costlier than a term loan but vastly more flexible. Here's when each wins and how to model the cost.
Variable monthly need · only pay interest on borrowed · perfect for retail/seasonal
Fixed amount + predictable payment · equipment as collateral lowers rate
Spike before busy season · draw down + pay back · revolves
Long amortization (15-25 yr) · structured mortgage product
Short-term need · pay back when client pays · standard use case
Lump sum · structured · seller wants certainty
Available credit doesn't cost anything. Future limit increases mean a new application + hard inquiry on personal/business credit.
Demonstrates ability to repay. Banks watch utilization · if you keep it maxed, they may reduce your limit at renewal.
LOC for AR gaps and inventory. Term loan for equipment ($25k+) or property — match financing duration to asset life.
Banks renew LOCs annually. Strong financial statements + on-time payments = no surprises. Be proactive with your business banker.