Line of Credit vs Term Loan
A line of credit gives you flexible, on-demand funds you draw as needed, while a term loan delivers a lump sum on fixed terms. Here's how to choose.
Quick verdict
Choose a line of credit for recurring, unpredictable needs where you pay interest only on what you draw.
Choose a term loan for a one-time, defined expense funded as a lump sum with a fixed repayment plan.
Many Indian SMEs keep a line of credit for cash-flow gaps and use term loans for larger, planned investments.
The basics
Line of Credit
A revolving facility that lets you draw funds up to a set limit, repay, and draw again as needed. You pay interest only on the amount drawn, making it ideal for managing recurring or unpredictable working capital gaps.
Term Loan
A lump sum disbursed upfront and repaid in fixed monthly instalments over a set tenure. Interest accrues on the full amount from disbursal, making it best for one-time, planned expenses like capex or expansion.
Line of credit vs term loan at a glance
| Factor | Line of Credit | Term Loan |
|---|---|---|
| Structure | Revolving; draw as needed | Lump sum disbursed upfront |
| Interest charged on | Only the amount drawn | The full loan amount |
| Interest rate | Typically 15-24% p.a. | Typically 14-22% p.a. |
| Repayment | Flexible; repay and redraw | Fixed EMIs over the tenure |
| Best for | Recurring, unpredictable needs | One-time, planned expenses |
| Tenure | Renewable, often annual | 12 to 60 months |
| Ticket size | ₹10 Lakh to ₹25 Cr typically | ₹10 Lakh to ₹50 Cr typically |
| Speed | Fast once limit is set up | Term sheet in 48 hours |
| Dilution | None | None |
Estimate your term loan EMI
Adjust the loan amount, rate, and tenure to see the fixed monthly EMI on a term loan, then weigh it against the pay-as-you-draw flexibility of a line of credit.
When to choose each
Choose a line of credit when
- Your funding needs are recurring and hard to predict.
- You want to pay interest only on what you actually use.
- You are managing seasonal or cyclical cash-flow gaps.
- You value the ability to draw, repay, and redraw freely.
Choose a term loan when
- You have a one-time, clearly defined expense.
- You want predictable fixed EMIs to plan around.
- You are funding capex, expansion, or a large purchase.
- You need a larger, upfront lump sum of capital.
How Recur Club helps you structure the right facility
Deciding between a flexible line of credit and a fixed term loan is easier when you see both offers together. Recur Club brings 125+ lenders onto one AI-native platform so you can compare structures side by side.
Once you connect your financial data, you receive indicative term sheets within 48 hours for revolving and lump-sum options, all without giving up equity.
We've deployed over ₹3,000 Cr to 2,000+ companies, and our team helps you match the facility to your cash-flow pattern so you never over-borrow.
Frequently Asked Questions
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