Term credit delivers a lump sum repaid on a fixed schedule of equal payments over a set period. Revolving credit gives access to a credit limit that replenishes as you repay — draw, repay, draw again. Term products are best for one-time capital needs; revolving products are best for recurring working-capital gaps.
The term vs. revolving distinction is foundational for understanding how to match financing to business needs. A term loan gives you all the funds upfront and sets a fixed repayment schedule — principal + interest amortized over months or years. Every payment reduces the outstanding balance until it reaches zero; you cannot re-borrow without applying for a new loan. A revolving credit facility — a [[business-line-of-credit]], business credit card, or revolving [[heloc]] — gives access to a maximum limit. You draw what you need, pay it down, and can draw again. Interest accrues only on the outstanding balance. This flexibility makes revolving credit well-suited to seasonal businesses, ongoing working capital needs, and situations where the borrowing need is recurring and unpredictable. The CFPB categorizes credit into installment and revolving accounts — a framework directly relevant here (https://www.consumerfinance.gov/ask-cfpb/what-is-a-revolving-account-en-77/). FICO scoring treats them differently: revolving utilization (what percentage of your limit is drawn) is a major scoring factor; installment balance as a percentage of original loan amount is a smaller factor. The Federal Reserve's Small Business Credit Survey (https://www.fedsmallbusiness.org/survey/2024/report-on-employer-firms) tracks how small businesses use each type.
Use a term loan for a specific, one-time capital need with a defined purpose (equipment, buildout, acquisition). Use a line of credit for recurring needs, seasonal fluctuations, or unpredictable working capital gaps. Many businesses benefit from both — a term loan for long-term capital and a line for short-term liquidity management.
High revolving utilization (drawing a large percentage of your limit) can lower both business and personal credit scores. Drawing 30% or less of your limit is generally considered favorable. Term loan balances have less impact on utilization-based scoring factors.