Quick Answer: Small business loans can be either installment or revolving, depending on the specific loan type.
According to the SBA, term loans and SBA loans are installment products, while business lines of credit and credit cards offer revolving credit. Master this difference, and you'll choose financing that matches your cash flow reality and keeps your business running smoothly.
What's the Difference Between Installment and Revolving Credit?
Think of installment loans like your mortgage. You get the full amount upfront, then make the same payment every month until it's paid off. The Federal Reserve calls this "closed-end credit" because you're locked into that payment schedule from day one.
Revolving credit works more like your business credit card:
- Borrow what you need, when you need it
- Pay interest only on what you actually use
- Pay it down, and that credit becomes available again
- Keep drawing and repaying without reapplying
The Treasury Department describes this as the ability to "borrow, repay, and reborrow up to the credit limit."
Here’s the real difference: Installment loans give you payment predictability. Revolving credit gives you flexibility when business gets unpredictable. With installment loans, you're making the same payment whether you had a great month or a slow one. With revolving credit, your payments adjust based on what you've actually borrowed, giving you breathing room during lean periods.
Which Small Business Loans Are Installment Loans?
If you’ve worked with traditional banks before, you’ve already seen the most common installment loans in action. They are:
- SBA 7(a) loans: Up to $5 million for working capital, equipment, and real estate, with terms extending to 10 years for working capital and equipment, or up to 25 years for real estate.
- SBA 504 loans: Fixed-rate financing up to $5.5 million specifically for major assets like commercial real estate or heavy equipment, with terms of 10, 20, or 25 years.
- Term loans: Typically range from $250,000 to $500,000 through online lenders, though SBA-backed loans can reach up to $5 million, perfect for business expansion or debt consolidation.
- Equipment financing: Purchase that new commercial oven or delivery vehicle, using the equipment itself as collateral to secure better rates.
These structured payment options work best when you need predictable monthly costs you can budget around from day one.
For restaurant owners, this might mean financing a kitchen renovation through a term loan or purchasing commercial-grade equipment through an SBA program. Service businesses often use installment loans for vehicle purchases or specialized tools that define their trade.
Which Small Business Loans Use Revolving Credit?
For many small business owners, the most useful financing isn’t a fixed loan at all — it’s revolving credit you can tap into as cash flow rises and falls.
- Business lines of credit provide the primary revolving credit option for small businesses. You receive approval for a set credit limit, draw funds as needed, and only pay interest on the amount you actually borrow. As you repay what you've borrowed, that credit becomes available again without reapplying. The SBA 7(a) program offers revolving credit through SBA Express (up to $500,000) and CAPLines (up to $5 million for seasonal and cyclical working capital needs).
- Business credit cards function similarly but with added benefits like team spending controls and business-specific rewards. Unlike personal cards, they typically report to both business and personal credit bureaus, helping establish business credit history while potentially affecting personal credit scores. Responsible use with timely payments can strengthen both your business and personal credit profiles.
These revolving options shine when you need to stock inventory before peak season, cover payroll during slow months, or handle unexpected expenses like emergency equipment repairs. You draw funds when needed, repay when cash flow improves, and the credit becomes available again without reapplying.
How Do You Choose Between Installment and Revolving?
Choosing between installment loans and revolving credit really comes down to how your cash flow behaves throughout the year.
Choose installment loans when:
- You're making a one-time major investment with predictable returns.
- You're buying equipment that will generate steady revenue.
- You're expanding your facility with clear capacity increases.
- You want locked-in rates and predictable monthly payments you can budget around.
Choose revolving credit when:
- Your business has seasonal peaks and valleys.
- You need flexibility to manage cash flow gaps.
- You're waiting on client payments and need bridge financing.
- You want access to funds without the burden of fixed payments during slow periods.
Restaurant owners managing seasonal tourist fluctuations benefit from drawing funds during slow January months and repaying during busy summer seasons. Service businesses waiting on client payments can bridge cash flow gaps without fixed monthly payments draining their accounts during lean periods.
The trade-off is straightforward: installment loans typically offer lower interest rates and payment predictability, while revolving credit provides flexibility at the cost of variable payments and generally higher rates.
How Does Homebase Help You Plan for Smarter Financing?
Understanding whether your business can support a new loan starts with clear visibility into labor costs—the largest expense for most hourly teams. Homebase gives you real-time insight into hours worked through tools like timesheets and detailed labor cost reporting, helping you see how staffing patterns affect cash flow and whether fixed or revolving financing aligns with your operational needs.
By centralizing your workforce data on the Homebase platform, you get a clearer picture of predictable expenses, seasonal fluctuations, and repayment capacity. That clarity makes it easier to compare financing options and choose what fits your business.
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Sources and Methodology
At Homebase, we rely on up-to-date, authoritative sources to ensure every Question Center article reflects accurate guidance for small business owners. We start with primary information from federal agencies, verify details using official lending programs and economic data, and use reputable industry resources only to supplement—not replace—official guidance.
For this piece, we referenced official materials from the U.S. Small Business Administration (SBA), Federal Reserve data, and publicly available Treasury and SBA program documentation related to small business lending and financing structures.