A term loan gives your business a lump sum that you repay on a set schedule. A business line of credit gives you an approved limit that you draw on and repay as your cash flow moves. The right choice depends on whether you are paying for one known cost or smoothing out an uneven income.
loan-o is a Brisbane finance broker based in Milton. We compare business loans and lines of credit across a panel of 50+ bank and non-bank lenders. This guide is general information, so check the details of any offer and the tax side with your accountant.
Quick answer
- Term loan: a fixed amount upfront, repaid over an agreed term. It tends to suit a planned, one-off cost.
- Line of credit: a limit you draw on when needed and repay as cash comes in. It tends to suit timing gaps and uneven cash flow.
- Many businesses use both, for different jobs.
How a business term loan works
The lender pays out the full amount at the start. You repay it, plus interest and any fees, over a set term, usually in regular instalments. Because the repayment is known in advance, a term loan is easy to budget for. Once you have repaid part of it, you generally cannot draw that amount again; you would need a new loan.
A term loan can be secured against an asset or unsecured. See secured vs unsecured business loans for how that changes the cost and the risk. If the purchase is a vehicle or machine, also compare an asset finance structure; our chattel mortgage explainer covers how that works. For general options, see our business loans page.
How a business line of credit works
The lender approves a limit. You draw what you need, up to that limit, and repay it as cash comes in. In most cases you pay interest on the amount you have drawn rather than the whole limit, though fees and rules vary between lenders. In many cases, once you repay, the funds can be drawn again, but redraw rules depend on the lender and the facility. See our line of credit page for how it is assessed.
Line of credit vs term loan: side by side
| Term loan | Line of credit | |
|---|---|---|
| How you receive funds | One lump sum upfront | Draw as needed, up to a limit |
| Repayments | Set schedule over the term | Flexible, within the lender's terms |
| Interest | On the loan balance | Usually on the amount drawn |
| Reuse of funds | Generally no | Often yes, as you repay |
| Best for | A planned, one-off cost | Timing gaps and uneven cash flow |
| Main risk | Fixed repayments when income dips | Relying on it for longer than planned |
Which one fits your situation?
- You know the amount and the purpose. A new vehicle, a fit-out or a one-off project usually points to a term loan, or an asset finance structure if the purchase is equipment.
- Your income is uneven. Seasonal swings, slow-paying customers and upfront job costs usually point to a line of credit. See how seasonal cash flow shapes the right finance.
- Late payments are the main problem. If the gap comes from unpaid invoices, compare invoice finance, a line of credit and an overdraft.
- You need both. A term loan for the big planned purchase and a line of credit for day-to-day working capital is a common split. Each facility counts toward your commitments, so lenders will look at the total.
What to compare before you choose
- Total cost over the period you expect to use it, including fees
- Whether security is required and what that puts at risk
- Repayment flexibility and any early payout or break costs
- Redraw and limit review rules for a line of credit
Our guides on comparing the total cost of business finance and comparison rates show how to put offers side by side. For the wider options, see working capital loans for small business, and for how lenders size a facility, see how much your business can borrow.
The takeaway
Choose a term loan when the amount and purpose are known and you want predictable repayments. Choose a line of credit when your cash flow moves around and you need flexibility. If you are unsure, loan-o can review your situation and compare options for free; start a free finance check with no credit check to enquire.
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Finance is subject to lender approval, lending criteria, terms, conditions, fees and charges. The information in this article is general and does not take into account your personal or business needs. It should not be treated as personal financial, tax, legal or credit advice.
Last reviewed: 22 October 2026. This content provides general information only. It should not be treated as personal financial, tax, legal or credit advice.
Frequently asked questions.
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A term loan pays out one lump sum that you repay on a set schedule over an agreed term. A line of credit gives you an approved limit that you draw on as needed, and in most cases you pay interest on what you have drawn rather than the full limit. Fees and rules vary between lenders, so check the terms of each offer.
A term loan usually suits a one-off cost with a known amount, because the repayments are set from the start. For a vehicle or machine, an asset-backed structure such as a chattel mortgage is often compared as well.
A line of credit is designed for timing gaps and seasonal swings, because you can draw when you need funds and repay when cash comes in. It still has to be managed carefully, since access to funds can make it easy to rely on it for longer than planned.
It depends on the lender and the limit. Some facilities are secured against an asset such as property, while others are unsecured and assessed mainly on business cash flow. Secured and unsecured options can differ in cost and in the risk to you if repayments stop.
Yes, many businesses use a term loan for a larger planned purchase and a line of credit for day-to-day working capital. Lenders will look at your total commitments, so each facility affects what else you can borrow.
Yes. loan-o is a broker, not a lender, and compares options from a panel of 50+ bank and non-bank lenders. Starting a conversation is an enquiry and does not involve a credit check.
Line of credit or term loan? Ask a loan-o specialist first.
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