Business Term Loan vs Line of Credit Which Financing Option Suits Your SME Best
Struggling to choose between a business term loan and a line of credit for your startup or SME? Making the wrong financing choice can slow growth or strain cash flow at critical moments.
In fact, the value of loans in India grew by nearly 10% in May 2025, showing how more businesses are relying on credit to fuel their ambitions. So, which option offers the right balance of flexibility and structure for your needs? When is a fixed repayment plan smarter than borrowing as you go?
This blog will answer all your questions by explaining the differences between these two popular funding options, helping you make a quick and confident decision.
What Is A Business Loan?
A business loan gives you a lump sum to repay in fixed installments over a set period, usually with a fixed interest rate.
It’s ideal for planned expenses like expansion or equipment. Startups and SMEs use term loans to fund long-term goals with clear repayment terms.
For example, if you require ₹10,00,000 to invest in new equipment, a business loan allows you to repay the amount in equal monthly installments over a set period, providing clarity on both the amount and schedule of repayment.
Also Read: Best Startup Business Loans for MSMEs in India 2025
What Is A Line Of Credit?
A line of credit gives your business flexible access to funds up to an approved limit. You decide how much to draw, whenever needed, and repay on your schedule.
For instance, with a ₹10 lakh limit, you could withdraw ₹5 lakh now and tap into the remaining ₹5 lakh later. Repayments restore your available credit. Interest typically varies and changes over time.
Differences Between A Term Loan And Line Of Credit
Also read: Essential Steps for Securing a Business Loan without Collateral
Business Loan vs Line of Credit: What to Choose?
- Business Loan: Ideal for planned, large expenses like equipment purchases or expansion. Offers fixed repayments and predictable budgeting.
- Line of Credit: Best for fluctuating cash flow and ongoing expenses such as payroll or supplier payments. Borrow and repay flexibly, paying interest only on used amounts.
Key Factors to Consider:
- Repayment flexibility
- Interest rates
- Loan amount and purpose
Also Read: Understanding Business Loan Terms: What You Must Know Before Signing
Conclusion
Choosing the right financing, term loan or line of credit, can boost your startup or SME’s growth. Term loans are suitable for planned big expenses, while lines of credit offer flexible cash flow management.
With over ₹2500 Cr funded to businesses across diverse sectors like SaaS, D2C, and EV, Recur Club offers a streamlined path to securing the right financing for your business.
Why Recur Club?
- Access offers from 150+ trusted lenders
- Get curated loan options within 48 hours with one application
- Expert capital advisory with transparent terms
- Secure data with ISO 27001 certification
Apply today for tailored financing
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