Loan vs. line of credit: which fits how you actually use the money?

A term loan is a lump sum, drawn once, repaid on a set schedule — usually amortising, so each repayment chips away at both principal and interest. It suits a one-off, known cost: buying equipment, settling a property, funding a defined project. You know the amount upfront, so you borrow exactly that and nothing more.

A line of credit is revolving: an approved limit you draw against as needed, repay, and redraw again, paying interest only on the balance actually drawn. It suits spending that fluctuates — working capital that ebbs with the trading cycle, or a buffer for opportunities that come up on their own timeline rather than yours.

The cost trade-off runs the other way to what people expect. A line of credit often carries a higher rate than an equivalent term loan, and sometimes a fee on the undrawn limit — you're paying for the optionality. If you know you need the full amount for a fixed purpose, a term loan is usually cheaper for the same borrowing.

Structure matters too: using a line of credit to fund genuinely one-off capital spending, then letting it sit fully drawn like a term loan, usually means paying revolving-facility pricing for term-loan behaviour. The fix is matching the facility to the actual cash flow pattern — not defaulting to whichever one was easiest to get approved first.