Unsecured Loans · 2 min read
Business Line of Credit vs. Term Loan
Business line of credit vs term loan: how each works, interest and payments compared, and which unsecured product fits real estate investors.
This guide is part of our Unsecured Business Loans hub.
The two most common unsecured business loan products are lines of credit and term loans. They solve different problems, so the right choice depends on how you will use the money.
How a business line of credit works
You are approved for a maximum amount and draw funds as needed. You pay interest only on what you use, and repaid amounts become available again. It works like a credit card with business terms.
How a term loan works
You receive a lump sum up front and repay it on a fixed schedule over a set term. Payments are predictable and the loan ends when it is paid off.
Side by side
- Best for: line of credit for ongoing or uncertain needs; term loan for one defined expense.
- Interest: line of credit charges only on the drawn balance; term loan charges on the full amount from day one.
- Payments: line of credit varies with balance; term loan is fixed.
- Reuse: line of credit revolves; term loan does not.
- Discipline: a term loan forces payoff; a line can stay drawn.
Which one fits real estate investors
- Covering rehab overruns and holding costs across several projects: a line of credit.
- Funding a large marketing campaign or equipment purchase: a term loan.
- Bridging a down payment on a single deal: either, depending on how fast you will repay.
Many investors keep a line of credit open as a safety net and use term loans for planned expenses. See how investors use unsecured loans.
Before you apply
Lenders review both products in similar ways. Read how to qualify for an unsecured business loan.
Related guides
- How Real Estate Investors Use Unsecured Business Loans
- How to Qualify for an Unsecured Business Loan
Explore the full hub: Unsecured Business Loans. Other financing: Fix and Flip & Hard Money Loans · DSCR & Long-Term Rental Loans · Commercial Real Estate Loans · Trust Deed Investing.
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Terms, leverage and timelines vary by lender, property and borrower qualifications. This article is general information, not financial, legal or investment advice, and not a commitment to lend.