Business loans and business lines of credit are different forms of business financing. With a business loan, you’ll receive a lump sum of money and pay it back over time. A line of credit is a pool of money that you can keep dipping into, up to a limit.
In general, business loans are the better choice when you need a significant amount of financing for a major purchase or expansion. Business lines of credit are better suited for evening out gaps in your cash flow or floating your finances through an emergency.
How much do you need?
What is a business loan?
A business loan is a lump sum that you receive from a small-business lender and then pay back over time with interest. Business loans are best when you need financing for a specific project, investment or acquisition that will help grow your business.
Pros
You can usually borrow more with a loan than you can with a line of credit.
In most cases, you’ll receive all your loan funds in one upfront payment.
Cons
You'll typically need to secure a loan with collateral like real estate, inventory or cash savings.
Some types of business loans can only be used for specific purposes — for instance, if you take out an equipment loan, you can’t use it to pay your employees during a lean month.
What is a business line of credit?
A business line of credit is a type of flexible business loan that can help you access working capital whenever you need it. Lines of credit work in a similar way to credit cards — you can borrow as much money as you need up to your credit limit, and then pay it back over time. Lines of credit are best for businesses that want ongoing access to financing to even out their cash flow or to tap in emergencies or an economic downturn.
Pros
Lines of credit can be used for any business expense.
Some lines of credit are unsecured, meaning you won’t have to provide physical collateral.
Cons
Lines of credit tend to be smaller than business loans.
Lines of credit can come with additional fees such as annual, draw or inactivity fees.
Business line of credit vs. loan: How to choose
In general, business loans are best suited for financing specific projects. Lines of credit are more similar to credit cards, making them useful if you want to tap into working capital on an as-needed basis.
The best choice for your business depends on how much financing you need, what you want to use it for and what you can qualify for.
Business loan | Business line of credit | |
|---|---|---|
Amount of financing | Varies widely, but loans usually offer more financing than lines of credit. | Varies widely, but lines of credit are usually smaller than loans. |
Financing purpose | A specific purpose. In your loan application, you’ll have to explain what you plan to do with your loan funds. | Can be used for any purpose. |
Repayment terms | Installment credit — you receive a lump sum and pay it back in regular installments over time. | Revolving credit — you can carry a balance that accrues interest and pay it back as you’re able, then borrow more. |
Collateral requirement | Almost always requires collateral. | May require a personal guarantee or UCC lien. |
Credit requirements | Tends to require good credit, multiple years in business and more annual revenue. | Usually easier to qualify for than business loans. |
Where to get a business loan or line of credit
Many banks and online lenders offer both business loans and business lines of credit.
Bank business loans and lines of credit
In general, bank loans are the hardest to qualify for, but they also tend to offer the lowest interest rates and most favorable terms. If you have multiple years in business and good or excellent credit, seek bank financing.
National banks offering business loans and lines of credit include:
| Product | Max loan amount | Min. credit score | |
|---|---|---|---|
 Bank of America Business Advantage Unsecured Term Loan Nerdwallet Rating 5.0 with NerdWallet Small Business | $100,000 | 700 | with NerdWallet Small Business |
 Wells Fargo BusinessLine® Line of Credit Nerdwallet Rating 5.0 with NerdWallet Small Business | $150,000 | 680 | with NerdWallet Small Business |
 Chase - Business line of credit Nerdwallet Rating 4.5 with NerdWallet Small Business | $500,000 | 660 | with NerdWallet Small Business |
Bank of America Business Advantage Unsecured Line of Credit Nerdwallet Rating 5.0 with NerdWallet Small Business | Undisclosed | 700 | with NerdWallet Small Business |
Online business loans and lines of credit
Online lenders can be a good resource for newer companies or business owners with fair or bad credit. They also tend to fund loans more quickly than banks can, sometimes within a day. But their interest rates tend to be higher than those offered by banks.
Online lenders offering business loans and/or lines of credit include:
| Product | Max loan amount | Min. credit score | |
|---|---|---|---|
 Bluevine - Line of credit Nerdwallet Rating 5.0 with NerdWallet Small Business | $200,000 | 625 | with NerdWallet Small Business |
 OnDeck - Online term loan Nerdwallet Rating 4.9 with NerdWallet Small Business | $400,000 | 625 | with NerdWallet Small Business |
OnDeck - Line of credit Nerdwallet Rating 5.0 with NerdWallet Small Business | $200,000 | 625 | with NerdWallet Small Business |
 iBusiness Funding - Online term loan Nerdwallet Rating 4.0 with NerdWallet Small Business | $500,000 | 660 | with NerdWallet Small Business |
 American Express® Business Line of Credit* Nerdwallet Rating 5.0 | $250,000 | 660 |
