Are you looking to take your business to the next level? Whether you need funds to expand your operations, purchase new equipment, or manage cash flow, finding the right financing option is crucial. We’ll look at two popular loan types – line of credit and term loan – to help you determine which one suits your business needs best.

What Is a Business Loan?

Let’s start with the basics. A business loan is a sum of money borrowed from a financial institution, like Citizens Bank, to support your business activities. It provides you with the necessary capital to cover various expenses, with a repayment plan that includes interest over a fixed period.

How Do Business Loans Work?

Business loans typically involve borrowing a specific amount upfront and repaying it through regular installments over a predetermined term. Each payment consists of both principal and interest, helping you gradually pay off the borrowed amount while managing your cash flow.

What Is a Business Line of Credit?

Now, let’s explore the concept of a business line of credit. Unlike a term loan, a line of credit gives you access to a predetermined credit limit that you can use as needed. It works similar to a credit card; you can withdraw funds up to your approved limit and pay interest only on the amount you use.

How Do Business Lines of Credit Work?

A business line of credit provides flexibility and convenience. You can withdraw funds whenever you need them, making it an ideal option for managing cash flow fluctuations or covering unexpected expenses. As you repay the amount you’ve used, your available credit replenishes, allowing you to borrow again when necessary.

Pros and Cons of Business Loans and Lines of Credit

Let’s weigh the pros and cons of each option to help you make an informed decision.

Pros of Business Loans

  • Versatile use of funds, although purpose often needs to be specified in the application
  • Typically, lower interest rates compared to business lines of credit
  • Depending on collateral, longer repayment terms, up to 25 years, resulting in lower monthly payments

Cons of Business Loans

  • Collateral, such as property or equipment, may be required to secure the loan
  • Repayment schedules can be inflexible, with potential additional fees for missed or late payments
  • Personal guarantee may be necessary, making the borrower personally responsible for repayment

Pros of Business Lines of Credit

  • Flexible use of funds without the need to disclose specific use in the application
  • Access to funds based on cash flow needs
  • Typically, lower interest rates compared to credit cards
  • Interest payments only on the portion of the line of credit used

Cons of Business Lines of Credit

  • Higher interest rates compared to business loans
  • Interest rates can be variable, increasing your monthly payment
  • Application process can be time-consuming
  • Potential risk of overspending or falling into a cycle of borrowing
  • Borrowing limits are generally lower compared to business loans
  • Personal guarantee may be necessary, making the borrower personally responsible for repayment

How to Choose Which Option Is Best for You

To determine the best loan type for your business, consider the following factors:

  • Borrowing needs. Assess how much capital you require and whether it’s a one-time expense or ongoing funding.
  • Use of funds. Determine how you plan to use the borrowed money and which loan type aligns better with your business goals.
  • Repayment terms. Consider your ability to make regular fixed payments (term loan) or manage fluctuations in payments (line of credit).
  • Collateral and personal guarantees. Understand the collateral requirements and personal guarantees associated with each loan type.


We’re Here to Help

Since 1934, Citizens Bank has been a trusted partner for Tennessee entrepreneurs, helping them achieve their growth goals. We understand that every business is unique, which is why we offer personalized solutions that are tailored to your specific capacities and objectives. With our term loans and lines of credit, you can fund a wide range of initiatives, including:

  • Starting a new business or acquiring an existing one
  • Establishing a franchise
  • Investing in commercial real estate
  • Managing rental properties
  • Undertaking new construction projects
  • Carrying out renovations and expansions
  • Securing working capital for day-to-day operations
  • Financing vehicle and equipment purchases
  • Managing inventory and stocking new product lines
  • Upgrading your technology infrastructure
  • Consolidating high-interest debt through refinancing

At Citizens Bank, we take pride in delivering more than just financial solutions. We provide attentive service and local expertise that sets us apart. Reach out to one of our dedicated local lenders today and experience the difference.