This article summarizes general small-business financing information for informational purposes.

It is not financial advice — actual rates and terms vary significantly by lender, credit profile, and business financials, and should be compared directly with multiple lenders before committing.

Key Takeaways

A business loan hands you a fixed lump sum with a set repayment schedule; a business line of credit gives you a revolving pool of funds you draw from as needed and repay only on what you've actually used.
Bank term loans currently run roughly 6.8% to 11% APR for well-qualified borrowers in 2026, while business lines of credit typically run higher, in the 8% to 22% range at banks and considerably higher — sometimes 20% to 80%+ — through online and fintech lenders.
A line of credit sitting untouched costs little to nothing beyond a possible small maintenance fee; a term loan starts accruing interest on the full amount from day one, whether you've used all of it yet or not.
SBA-backed options exist for both: SBA 7(a) term loans run around 9.75% to 13.25% APR, while the SBA's CAPLine program offers revolving credit up to $5 million with rates tied to the Prime Rate, typically 10.5% to 14.5% in 2026.
Lines of credit are generally easier to qualify for and faster to access than term loans, which more often require collateral, stronger financials, and longer processing — a real trade-off between speed and cost.

The structural difference, and why it matters more than the rate

The single most important distinction between these two products isn't the interest rate — it's what you're actually being given. A term loan delivers a lump sum upfront, and you begin repaying it, with interest, on a fixed schedule starting immediately. A line of credit is closer to a business credit card: you're approved for a maximum amount, but nothing is disbursed and no interest accrues until you actually draw against it, and once you repay what you've drawn, that capacity becomes available again.

That structural difference decides which product actually fits a given need far more than which one happens to have a lower headline rate. A one-time, planned purchase — new equipment, a real estate purchase, buying out a business partner — is a term loan's natural use case, because you know the amount and the timing in advance, and a lump sum with a predictable repayment schedule matches that need cleanly. Recurring or unpredictable needs — smoothing out seasonal cash flow, covering payroll during a slow stretch, restocking inventory ahead of a busy season — fit a line of credit better, because you don't know in advance exactly how much you'll need or precisely when, and paying interest only on what you actually draw avoids paying for capacity you're not using.

What the actual 2026 rates look like

Rates vary considerably by lender type and borrower qualification, but the general shape of the market in 2026 is fairly consistent across sources. Bank term loans for well-qualified borrowers run roughly 6.8% to 11% APR — the cheapest tier available, but also the slowest to access and the strictest to qualify for, typically requiring at least two years in business and strong personal and business credit. SBA 7(a) loans sit slightly higher, around 9.75% to 13.25% APR, trading a bit of rate for a government guarantee that opens the door to borrowers who might not qualify for a straight bank loan.

Business lines of credit run higher on average — banks typically price them in the 8% to 22% APR range, while the SBA's revolving CAPLine product, offering up to $5 million with government backing, prices closer to 10.5% to 14.5%, tied to the Prime Rate. Online and fintech lenders occupy the fastest, most accessible, and most expensive tier of the market: lines of credit from 10% up into the 60%+ APR range depending on credit profile, with same-day or next-day funding as the trade-off for that cost and lower qualification bar.

Why the "unused capacity costs nothing" feature actually matters

This is the detail that often gets underweighted when business owners compare the two products purely on headline rate. A $250,000 line of credit that sits completely untouched for six months costs essentially nothing in interest during that period — most lenders charge a small maintenance fee at most, with no interest accruing on capital you haven't drawn. The same $250,000 taken as a term loan would have been accruing interest from the day it was disbursed, whether or not you'd actually put all of it to work yet.

That difference is exactly why a line of credit functions well as a safety net or a buffer against unpredictable cash flow — you're not paying a carrying cost for capacity you're holding in reserve, only for the portion you actually use, when you use it. The trade-off is that lines of credit typically carry higher headline rates than an equivalent-tier term loan, shorter annual renewal cycles rather than a loan's fixed multi-year term, and often require the balance to be paid down to zero periodically as a condition of keeping the line open.

What this means if you're choosing between the two right now

If you know the exact amount and timing of a purchase, a term loan is usually the cheaper and simpler instrument. You're not paying a premium for flexibility you don't need, and the lower rate tier generally available on term loans reflects that.
If your need is recurring, seasonal, or genuinely uncertain in size, a line of credit avoids paying for capital you're not using. The higher headline rate is offset by only paying interest on drawn funds, which can make it cheaper in practice than a term loan for a use case with a lot of idle periods.
If speed matters more than rate, expect to pay for it either way. Online and fintech lenders fund far faster than banks or the SBA, but that speed comes at a real cost premium — know your timeline before you start comparing offers, since it will narrow your realistic options significantly.
Either way, convert every offer to an APR before comparing, including any factor-rate products. A quoted monthly rate or factor rate can look deceptively cheap next to an APR quote until you do the conversion — always compare on the same basis before deciding.

Frequently Asked Questions

Is a business line of credit the same thing as a business credit card? They're similar in concept — both are revolving credit where you draw funds and repay them — but a line of credit generally offers larger credit limits and lower rates than a business credit card, which commonly runs 18% to 28% APR, meaningfully higher than most bank or SBA line-of-credit pricing.

Do I need collateral for either of these? It depends heavily on the lender and the amount. Bank term loans and larger SBA products more often require collateral or a personal guarantee, while smaller lines of credit — particularly from online lenders — are more frequently offered unsecured, though usually at a higher rate to compensate for that added lender risk.

Which one is easier to qualify for if my business is newer or my credit isn't perfect? Lines of credit, especially from online and fintech lenders, generally have more lenient qualification requirements and faster approval than bank term loans or SBA products, which typically expect at least two years in business and stronger financials. That accessibility comes with a real cost trade-off in the form of higher rates.

What's a factor rate, and how is it different from an APR? A factor rate is a multiplier, not a percentage — borrowing $50,000 at a 1.4 factor rate means repaying $70,000 total, regardless of how quickly you pay it back, since the cost doesn't shrink with early repayment the way interest on a standard APR loan does. Always convert a factor rate to its effective APR before comparing it against a standard loan or line of credit quote.

Sources & References

Bankrate, "Best Business Lines Of Credit In September 2026"
LendingTree, "Best Business Lines of Credit (September 2026)"
BestMoney, "Business Line of Credit vs. Loan: Which Should You Pick"
ClearlyAcquired, "Best Business Line of Credit Lenders 2026"
Crestmont Capital, "Business Line of Credit Rates: What to Expect and How to Get the Best Rate in 2026"
Lending Valley, "Business Loan Interest Rates 2026 | Rate Comparison"
Bay Street Lending, "Business Line of Credit Rates August 2026: 8–22% APR"

Business Line of Credit vs Business Loan: What Actually Fits in 2026