Chartered bank term loan vs business line of credit
A chartered bank term loan is cheaper and should be your first call if the business is bankable — two or more years of history, clean financials and strong credit. A line of credit costs more but approves on cash flow rather than balance sheet, funds in days instead of weeks, and only charges interest on what is drawn. The deciding question is not which is better; it is whether the bank will say yes inside your timeline.
Start an applicationSide by side
| Best for | Chartered bank term loan: Bankable files: strong credit, 2+ years, clean financials — Business Line of Credit: Fluctuating cash needs, payroll smoothing |
|---|---|
| Typical range | Chartered bank term loan: $50K – $5M+ — Business Line of Credit: $25K – $500K |
| Speed to funding | Chartered bank term loan: 3–10 weeks — Business Line of Credit: 3–10 days |
| Cost | Chartered bank term loan: Lowest available — Business Line of Credit: ~8–20% APR |
| Collateral | Chartered bank term loan: Secured + personal guarantee — Business Line of Credit: Often unsecured |
Choose Chartered bank term loan when
- The business has two or more years of filed financial statements
- Personal and business credit are strong and unblemished
- The need is a known, one-time amount rather than a fluctuating one
- You can wait three to ten weeks for a decision
- You are comfortable pledging security and signing a personal guarantee
Choose Business Line of Credit when
- Cash needs rise and fall — payroll, inventory, seasonal gaps
- You want to pay interest only on the balance actually drawn
- The business is under two years old or the financials are still messy
- A bank has already declined, or the timeline is days rather than weeks
- You want capital available before you need it, not after
When both make sense
Many established businesses run both: bank debt for the long-dated, asset-backed portion, and a line of credit for working capital that moves week to week.
A line of credit taken now does not preclude bank financing later. Twelve months of clean repayment history often improves the file a bank sees.
Frequently asked questions
Is a bank loan always cheaper than a line of credit?
On rate, usually yes. On total cost, not necessarily. A term loan charges interest on the full principal from day one, while a line of credit charges only on what is drawn. A business that needs $200,000 available but typically uses $60,000 can pay less in real interest on the line, even at a higher posted rate.
Should I apply to my bank first?
If the file is bankable and the timeline allows, yes — and any advisor telling you otherwise is not acting in your interest. Voxen's work starts where the bank stops: files that are partially bankable, near-bankable, or viable but not bankable on paper.
Can I be declined by a bank and still get a line of credit?
Frequently. Bank underwriting weights filed financials and credit history; alternative lines weight deposit consistency and revenue. A business with twelve months of steady deposits and a thin credit file is a decline at one and an approval at the other.
Related
- Invoice Factoring vs Merchant Cash Advance (MCA) — If the business invoices other businesses, factoring is almost always the cheaper answer — it advances money the business has already earned, priced from 1.5% per 30 days, and creates no debt.
- Term Loan vs Merchant Cash Advance (MCA) — A term loan is the cheaper instrument and the right one whenever the file can carry it — fixed payments, a defined end date, and pricing quoted as an annual rate.
- Equipment Financing vs Term Loan — If the money is going into a specific piece of equipment, finance the equipment.