Line of credit or term loan

A term loan is advanced as a lump sum and repaid on an agreed schedule over an agreed period. You know at the outset what you borrowed and what the repayments are.

A line of credit is an approved limit you draw against when you need to, repay, and draw against again. You are generally charged on what you have drawn rather than on the whole limit, and you do not make a fresh application each time.

When the need is specific and you can name it. A piece of equipment, a fit-out, a known project cost. The amount is knowable in advance, and a fixed repayment schedule is straightforward to plan around.

Term loans also suit a need with a clear end. Once it is repaid, it is done.

When the need recurs and you cannot time it. Customers who pay late but not predictably, a seasonal pattern that varies in depth, or the wish to hold capacity in reserve for an opportunity.

The flexibility has a cost. Some facilities charge to keep a limit available whether or not it is drawn, and a revolving facility that is never fully repaid can quietly become permanent. Both are worth being deliberate about.

These are not mutually exclusive, and plenty of businesses run a term facility against a specific asset alongside a smaller line of credit for timing gaps.

What matters is that the total committed against your cash flow is something the business can carry. Lenders look at existing commitments closely, and so should you.