Small business loans vs line of credit whats the difference
A business loan advances a defined amount repaid over a defined period, while a line of credit is a revolving limit drawn and repaid repeatedly. HomeSec writes the first and not the second. Where a business needs an ongoing working-capital facility, a property-secured term loan is the wrong product and HomeSec says so on the first call.
A term loan advances a defined amount, once. A line of credit is a limit you can draw against, repay, and draw against again. The distinction sounds academic until you pick the wrong one.
The mechanical difference
Term loan. You borrow $200,000. You get $200,000. You repay it — either on a schedule from trading, or in one go at the end from a defined source. When it is repaid, it is finished.
Line of credit. You are approved for a $200,000 limit. You draw $60,000 this month, repay $40,000 next month, draw $90,000 the month after. Interest is charged on what is drawn, usually with a fee on the undrawn portion as well. The facility persists.
Which problem each one solves
A line of credit solves a recurring mismatch — the ordinary rhythm of a business that pays suppliers before customers pay it. It is a permanent piece of financial plumbing.
A term loan solves a specific problem with a beginning and an end: a settlement gap, a tax debt, a purchase, a claim that has not been paid.
If you find yourself wanting to re-draw a term loan two months after repaying it, you probably needed a line of credit. If you find yourself carrying a permanent balance on a line of credit that never goes to zero, you have quietly turned it into a term loan on worse terms.
What HomeSec writes, and what we do not
We write term loans. A defined amount, secured against property, repaid from a defined exit.
We do not write lines of credit. If what you need is a revolving facility, we are the wrong lender and we will say so on the first call rather than persuading you into a product that does not fit.
Where the confusion usually comes from
Our loans have one feature that makes people ask whether they are a facility: the term is open. No minimum, no maximum, no penalty for repaying early, no fee to extend. So a loan can run for six weeks or well past a year depending on when the exit arrives.
That is flexibility on the duration, not on the drawing. The amount is set at settlement and you cannot draw more later without a new loan. Worth being clear about, because “flexible term” and “revolving facility” are easy to confuse and expensive to confuse.
Which to ask for
If the need repeats and the amount varies — a line of credit, from a bank or a working capital lender. If the need is specific and there is a dated exit — a term loan, and if you have property equity and a deadline, that is us.
Reviewed by Jason Brockmuller, Joint Chief Executive