Is a Small-Business Loan Installment or Revolving?
Whether a small-business loan is installment or revolving depends on the loan type and terms of the agreement.
Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
Updated · 2 min read
Written by
Lead Writer 
Edited by
Managing Editor A small-business loan can be either installment or revolving, depending on the type of loan offered by the lender. A business term loan is a type of installment credit that is generally a long-term funding option for large purchases. A business line of credit is a type of revolving credit often used for short-term financing needs like working capital.
Determining whether installment or revolving credit is the right fit for your business will depend on the loan amount, payment preferences and other factors. Both forms of credit are offered by traditional banks, credit unions and online lenders.
How much do you need?
We'll start with a brief questionnaire to better understand the unique
needs of your business.
Once we uncover your personalized matches, our team will consult you
on the process moving forward.
What is an installment loan?
An installment loan provides a borrower with a lump sum of capital which is then repaid at regular intervals over a set period of time. Depending on the loan agreement, payments could be made monthly, weekly or daily. Typically, the payment amount is fixed and includes a portion for interest and another amount to pay down the principal balance.
A business term loan is a type of installment loan. After a term loan is paid off, the borrower typically must apply for a new loan if additional funds are needed.
Installment loans can be either secured or unsecured. Secured business loans require some form of collateral, usually property, equipment or another type of business asset, that can be seized by the lender if you default on the loan. Unsecured business loans, on the other hand, don’t require collateral, but you may be asked to sign a personal guarantee.
Pros and cons of installment loans
Pros
Predictable payment amounts, in many cases.
Long-term financing options.
Large loan amounts.
A variety of loan types.
A set repayment end date.
Cons
Rigid repayment terms.
Interest applied to the full loan amount.
Not renewable.
When to use an installment loan
You need a set loan amount
If you're confident in the loan amount you need, then an installment loan may be the right fit, especially if you need the money in a lump sum. For example, if you’re using the funds to make a one-time purchase, you’ll likely want an installment loan.
You have long-term financing needs
Some term loans can offer you more time for repayment when compared with revolving credit. When you stretch your payments out over a longer period of time with a long-term business loan, it can mean a lower monthly payment. However, that trade-off typically means you’ll pay more in interest costs over the life of the loan.
You have larger funding needs
Installment loans are typically used to finance large expenses. If you're looking to purchase a new property or buy equipment, inventory or other large-ticket items, an installment loan is often a good option. Some types of installment loans that often have large loan amounts include commercial real estate loans, equipment loans and secured business loans.
You prefer predictable payments
Installment loans with fixed interest rates will typically require the same payment amount each month over the term of the loan. With a set monthly payment amount, it can be easier to budget for an installment loan compared with a revolving loan, where the payment varies depending on how much of the credit line you use.
What is a revolving loan?
A revolving loan allows the borrower to withdraw money as needed up to a preset limit. Typically, the borrower repays a portion of the balance at regular intervals based on their agreement with the lender. For example, a monthly minimum payment may include accrued interest plus a small percent of the outstanding balance. With a revolving loan, you typically only pay interest on the funds that you use — not the maximum limit.
A business line of credit is a common type of revolving credit. Revolving credit gives the borrower flexibility in determining when to withdraw money and how much. As long as the credit balance remains within the preset limit and you make timely payments, you can continue to draw from the line again and again.
Revolving credit can be in the form of a secured business line of credit or an unsecured business line of credit.
» MORE: What is a business loan?
Pros and cons of revolving loans
Pros
Draw funds as needed.
Flexible payment terms.
Interest applied to current balance only.
Renewable, typically.
Cons
Short terms, in some cases.
Smaller credit limits.
Fewer loan types.
When to use a revolving loan
Short-term financing needs
Revolving credit can be a good option for short-term cash shortages or to cover unexpected expenses. Some businesses use lines of credit as a type of emergency fund since interest is only paid on the funds used. Some revolving loans used for short-term needs include payroll loans and working capital loans.
» MORE: Best short-term business loans
Fluctuations in cash flow
Businesses that experience major fluctuations in their cash flow may benefit from revolving credit in the form of a cash flow loan. For example, seasonal businesses that don’t have consistent revenue throughout the year can use lines of credit to cover operational expenses during their slow season.
Preference for flexible loan amount and payments
If you don’t know exactly how much money you need, then revolving credit will give you the flexibility to withdraw funds if and when needed. While you’ll typically need to make a minimum payment, you’ll have the option to make larger payments when you want.
Installment loans vs. revolving credit
The terms of a loan can vary depending on the type of business loan, lender and your business’s credentials. However, the following are some common differences between installment and revolving loan programs.
| Installment loan | Revolving credit | |
|---|---|---|
| Loan amount | Fixed amount. | Maximum limit. |
| Payout | One-time. | Withdraw as needed. |
| Repayment amount | Fixed amount. | Minimum amount based on balance and interest, with option to pay more. |
| Interest calculation | Based on total loan amount. | Based on current balance, not maximum loan limit. |
| Ability to renew | Not renewable, typically. | Renewable, typically. |
| Types of loans | SBA loans, business term loans, commercial real estate loans, commercial vehicle loans, equipment loans, microloans. | SBA lines of credit, business lines of credit, business credit cards. |
Compare your business loan options
The best business loan is generally the one with the lowest rates and most ideal terms. But other factors — like time to fund and your business’s qualifications — can help determine which option you should choose. NerdWallet recommends comparing small-business loans to find the right fit for your business.
Frequently Asked Questions
Is an SBA loan an installment loan?
Many SBA loans are installment loans, including 7(a) loans and microloans. The SBA offers revolving lines of credit under SBA Express, Export Express, Export Working Capital and CAPLines programs.
Is a small-business loan secured or unsecured debt?
Small business loans, whether installment or revolving, can be secured or unsecured. If a lender doesn’t require collateral, it is likely they will ask you for a personal guarantee.
Who offers installment and revolving loans?
Banks, credit unions, online lenders and other alternative lenders are the best sources for installment and revolving loans.
Article sources
NerdWallet writers are subject matter authorities who use primary,
trustworthy sources to inform their work, including peer-reviewed
studies, government websites, academic research and interviews with
industry experts. All content is fact-checked for accuracy,
timeliness and relevance. You can learn more about NerdWallet's
high standards for journalism by reading our
editorial guidelines.
