QUICK ANSWER
- A loan gives you one lump sum with fixed payments. Best for a specific, one-time cost.
- A line of credit gives you a reusable credit limit. Draw what you need and pay for only that. Best for ongoing or unpredictable costs.
- Your real rate or fee depends on your revenue, time in business, and credit profile, so no blog post can give you that number honestly. A lender can. Loot decides in as little as 24 hours. There's no minimum credit score, and checking your eligibility won't affect your score.
Loan vs. line of credit: key differences at a glance
| Loan | Line of credit | |
|---|---|---|
| How you get the money | One lump sum, all at once | A credit limit you draw from as needed |
| What you pay for | Interest on the full amount from day one | Interest only on what you've drawn |
| Repayment | Fixed schedule until the term ends | Flexible, pay down and draw again |
| Does it revolve? | No. Once it's paid off, the loan is done | Yes. Access renews as you repay |
| Cost certainty | Often a fixed rate for the full term (confirm with your lender) | Often variable, so cost can shift as rates or your balance change |
| Best for | One-time, known-cost expenses | Ongoing or unpredictable needs |
What is a business loan?
A business loan gives you one lump sum of cash, upfront. You agree to a fixed term, say 12 or 24 months, and pay it back in fixed installments until the balance hits zero. Interest is charged on the full amount from day one, whether you spend it all right away or let some sit in your account.
Think of it like a mortgage: you borrow a set amount for a set purpose, and the payment schedule doesn't change.
Loan pros:
- Fixed payments make budgeting simple
- Often the lower-cost option for one large, planned expense
- A clear payoff date
Loan cons:
- You pay interest on the entire amount, even if you don't use it all right away
- Getting more money later means a new application
- Less useful when your need is ongoing
What is a line of credit?
A line of credit works more like a credit card than a loan. A lender approves you for a credit limit, say $50,000, and you draw from it whenever you need cash. Draw $10,000, and you're only charged on that $10,000, not the full limit. As you repay, that credit becomes available again. No new application, no new approval.
Most lines of credit, including Loot's, price each draw based on how much you take. Your rate scales with your usage, so you're always paying in proportion to what you actually borrow rather than the same rate regardless of draw size.
Line of credit pros:
- Draw only what you need
- Pay for what you use, not the full limit
- Reuse the line as you repay
- A ready buffer for payroll gaps and seasonal swings
Line of credit cons:
- Variable rates, at most lenders, make long-term cost harder to predict
- Easy access can tempt over-borrowing without disciplined repayment
How to choose: match the tool to the job
Choose a loan when:
- You're buying a specific asset with a known price tag, like equipment, a vehicle, or real estate
- You're funding a one-time expansion or acquisition
- You want a fixed payment and you're comfortable committing to a term
Choose a line of credit when:
- Your need is ongoing or hard to predict, like payroll gaps, seasonal inventory, or slow-paying invoices
- You want to pay for only what you use
- You want standing access to capital without reapplying every time cash gets tight
Bottom line
A loan and a a line of credit aren't competitors. They're different tools for different jobs. Know your next expense before you know your financing: one big, planned cost points to a loan; ongoing or unpredictable needs point to a line of credit. Most businesses end up using both.
The only number that matters is the one with your name on it. Check what you qualify for in minutes No minimum credit score, and checking your eligibility won't affect your credit score.
Blackbeard
Senior Content Strategist · Small Business Finance · Loot
Blackbeard writes about cash flow, lending, and financial planning for small business owners, drawing on eight years of covering SMB finance. Blackbeard holds a B.S. in Finance and has contributed to several small-business banking publications.
FAQ
It depends on your credit profile, how much you borrow, and how long you carry a balance. No article can give you an honest number without knowing those. What you can control is picking a lender that discloses your full cost upfront instead of a rate that can move.
Yes. Many businesses use a loan for a big one-time purchase and a line of credit for everyday cash flow, side by side.
It varies by lender. Many require a minimum FICO score in the 600s; others, including Loot, set no minimum score and underwrite based on your business's cash flow instead.
Speed depends on the lender and your documentation. Loot gives a decision in as little as 24 hours, often backed by an automated review that takes under a minute, with funding as fast as the same day once approved.
No. With a true revolving line of credit, you only pay for the amount you've actually drawn. Not the full approved limit.
Not with Loot. Checking your eligibility is a soft pull, so it never affects your credit score, whether or not you move forward.
Share article
