By Steven Edisis, CEO of Dynamic Capital, @stevenedisis
When your SMB generates $600K–$2M in annual revenue, two financing tools stand out: business lines of credit and term loans.
Both options offer unique advantages and serve different purposes, making the decision of which to choose an important one. Understanding the differences and aligning them with your business goals is key to making the smartest financial choice.
What Is a Business Line of Credit?
- Flexible, revolving credit up to a set limit.
- Pay interest only on what you use.
- Similar to a business credit card, but with larger limits and better rates.
Best For: covering payroll, buying inventory, or handling short-term expenses.
What Is a Term Loan?
- Lump-sum funding with a fixed repayment schedule.
- Predictable payments over 1–5 years.
Best For: expansion projects, equipment purchases, or other long-term investments.
Key Differences
| Feature | Line of Credit | Term Loan |
|---|---|---|
| Flexibility | High | Low |
| Repayment | Variable, as used | Fixed schedule |
| Approval Speed | Fast (1–2 weeks) | Longer (2–6 weeks) |
| Best Use | Working capital, short-term needs | Major investments, long-term growth |
Which Should $600K+ Businesses Choose?
If your business experiences seasonal fluctuations, a line of credit provides flexibility to manage working capital. It allows you to borrow as needed for inventory, payroll, or cash flow gaps — and you only pay interest on what you use.
For businesses making substantial, long-term investments, a term loan offers predictable payments and financial stability, making it easier to plan for future growth.
Case Example
A professional services firm generating around $800K in annual revenue needed $150,000 for office renovation and recruitment. After evaluating both options, the firm chose a term loan for its fixed monthly payments over three years. Within 18 months, this stability supported a 40% increase in operational capacity and sustained revenue growth.
Conclusion
At Dynamic Capital, we understand that choosing the right financing tool can define your next growth phase. The best solution is one that matches your cash flow, goals, and business model.
- Lines of Credit: Ideal for managing short-term operations or bridging cash flow gaps. Interest is only paid on the amount drawn.
- Term Loans: Suited for long-term investments like expansion or equipment purchases. Provides stability and predictability.
To explore your options, Prequalify today and discover which financing solution best fits your business goals.