Line of Credit or Term Loan: How to Choose

Both a term loan and a line of credit put capital in your hands, but they work in almost opposite ways. A term loan is a lump sum you repay on a set schedule. A line of credit is a pool you dip into as needed, paying interest only on what you actually use. Pick the wrong one and you either pay for money you're not using or run short when you need flexibility.

What a term loan is

With a term loan, you borrow a fixed amount up front and pay it back over a set period. At Monera Capital that runs from $10,000 to $500,000, with terms of 3 to 24 months and fixed daily or weekly payments. You know the full amount on day one, and you know exactly what you owe each week until it's paid off. No surprises.

That predictability is the whole appeal. A term loan fits best when you know the number: a specific piece of equipment, a planned expansion, a one-time project. You take the lump sum, put it to work, and pay it down.

What a line of credit is

A business line of credit works more like a financial safety net. You're approved for a limit, up to $250,000, and you draw from it whenever you need to. Borrow $5,000 today, $20,000 next month, or nothing at all for a while. The key difference: you only pay interest on what you've drawn, never on the full limit sitting there unused. And as you repay, your available credit refills, ready for the next time.

That makes a line of credit the better tool when you don't know the exact amount or timing ahead of time, which is most of the messy, real-world stuff: a slow month, a sudden opportunity, a gap between paying a supplier and getting paid by a customer.

The quick comparison

• Structure: a term loan is a one-time lump sum, while a line of credit is revolving and reusable.
• Interest: a term loan accrues on the full balance, a line of credit only on what you draw.
• Best for: a term loan for known, one-time costs, and a line of credit for ongoing or unpredictable needs.
• Amounts: term loans up to $500,000 and lines of credit up to $250,000.
• Reusability: repay a term loan and it's done. Repay a line and the credit comes back.

Qualifying is a little different

Because a line of credit stays open and revolving, the bar to get one is usually a touch higher. A term loan typically needs about 6 months in business and $10,000 or more in monthly revenue. A line of credit usually wants closer to 12 months in business and $15,000 or more in monthly revenue. Both look at your bank statements and overall performance rather than leaning on your credit score alone.

Matching the product to the need

A simple way to decide: if you can name the exact amount and it's a one-time need, a term loan is usually cleaner and often gets you a larger sum. If the need is recurring, uncertain, or you just want capital standing by for whenever it comes up, a line of credit saves you from paying for money you aren't using.

And it isn't strictly either/or. Plenty of businesses keep a line of credit open for day-to-day flexibility and take a term loan when a big, planned investment comes along. The two cover different jobs.

Getting either one through Monera Capital

We offer both, with approvals in as little as 4 to 8 hours, and we'll help you match the structure to the need rather than pushing one product. If you're still weighing financing against a traditional bank, our guide on bank loans vs. alternative funding is a good next read.

When you want to see actual numbers for your business, apply in a few minutes or browse all our funding solutions. Checking costs nothing and commits you to nothing.