Business loan vs a business line of credit

2 min read

Lump sumBusiness loan

Ongoing limitLine of credit

Usage drives costThe key point

One sum versus an ongoing limit

A business loan gives you a single lump sum for a defined purpose, repaid on a fixed schedule. A line of credit gives you an ongoing limit you can draw against, repay and redraw, paying interest only on what is out. The loan suits a one-off, sized need; the line suits recurring, variable ones. It is the same core distinction as term loan vs revolving facility, framed for how directors most often ask the question.

How cost tracks usage

	Business loan	Line of credit
Structure	Lump sum	Reusable limit
Interest	On the full advance	On the drawn balance
Cheaper when	Money used steadily	Borrowed in short bursts
Certainty	Fixed total cost	Depends on usage

If you will use the full amount steadily, a loan is efficient. If you dip in and out, a line is cheaper because idle capacity costs little. Model both with the loan comparison calculator.

Often the answer is both

A term loan for the defined project and a line for the day-to-day is a common, effective split. See the loan-or-line decision guide for a four-question way to choose.

The Credicorp view

Credicorp offers a fixed-term business loan and a Credicorp Flex line of credit — both lent to the company with no personal guarantee — so you can match each need to the right structure. Register to apply. Educational content, not financial advice.

Frequently asked questions

What is the difference between a business loan and a line of credit?

A business loan is a single lump sum for a defined purpose, repaid on a fixed schedule. A line of credit is an ongoing limit you draw, repay and redraw, paying interest only on what is out. The loan suits a one-off sized need; the line suits recurring, variable ones.

Which is cheaper?

It depends on usage. A loan is efficient if you use the full amount steadily. A line is cheaper if you borrow in short bursts and leave capacity idle, because you pay interest only on the drawn balance. Compare the total cost in pounds for how you would actually use each.

Can I have both?

Yes, and many businesses do — a term loan for a defined project and a line of credit for day-to-day swings. Matching each facility to a genuine need, and keeping both affordable, is often more effective than forcing one product to do both jobs.