External financing can be a great way to help you reach your business goals, but with so many different terms, rates, and fees, it can be difficult to compare financing options. So, how much does a line of credit cost, and how does that compare to the cost of a term loan?

Term Loan Vs Line of Credit:Typical Uses

While they are both types of debt capital, lines of credit and term loans have very different uses in small business finance. For a deep dive into the differences between term loans and lines of credit, check out our article: Term Loans and Lines of Credit: What’s the Difference?

In general, lines of credit and term loans are best used for the following small business expenses:

Line of Credit

• Inventory
• Payroll
• Seasonal working capital
• Short term costs

Term Loan

• Equipment
• Real estate
• Start-up capital
• Larger costs
• Longer time needed to repay

Term Loan and Lines of Credit Cost Comparison

Interest rates

, annual fees, principal, and credit scores can make for a confusing time when it comes to comparing term loan and line of credit cost. To help you determine the best financing option for your business, we’ve broken the costs down into a side-by-side comparison.

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What is the Prime Interest Rate?

Prime or the prime interest rate

is the prevailing interest rate that traditional banks charge to customers with excellent credit scores. The prime rate is usually the same as the interest rate set by the US Federal Reserve. If your credit score could use some improvement, you will likely be charged more than prime.

Merchant Cash Advance (MCA)

Merchant Cash Advances or MCA are another common type of business financing. When a small business owner takes out a merchant cash advance, they’re given cash up front, which they repay through a predetermined percentage of their daily debit and credit card sales. This can be a great lending option for businesses with fairly stable debit and credit card sales, but it is also a common vehicle for predatory lending practices. If you are considering a Merchant Cash Advance, make sure you read and understand the terms carefully before agreeing to the loan.

Cost vs Flexibility

All three of these popular loan options have pros and cons that you need to consider before choosing a loan for your business. The chart below helps you consider the total cost of a loan verses the flexibility of it’s repayment terms (i.e. how much and how often you will make payments).

Which is Right for Your Business?

Comparing the cost of term loans and lines of credit can feel a bit like comparing an apple and an orange. If you are considering an MCA as well, the decision can get even more confusing. The best way to decide what is right for your business is to start with what your business can afford in terms of monthly or weekly payments, what the loan will be used for, and what loan terms work best for your business’s financial situation. Once you have that list, you can start comparing it to different financing options to find the best fit for your business.

Financing with Accion Opportunity Fund

If you do decide that a term loan is right for you and your business, consider working with Accion Opportunity Fund. At Accion Opportunity Fund, our goal is not only to help you get the funding and support you need to launch your business, but to help you grow and thrive once you’ve got your foot in the door. Accion Opportunity Fund is a government-regulated, non-profit financial institution with a mission to help small business owners reach their goals. Find out more about our small business loan program and apply online today.

Disclaimer: Average interest rates and typical loan terms can change rapidly, so please thoroughly check with any provider to confirm rates and terms.

Learn More About Business Financing

When it comes to your finances, you want clear guidance and easy to implement tools based on your unique needs. Visit Accion Opportunity Fund. to get started strengthening your financial management and meeting your goals.

Experience a different kind of financial education. Learn with AOF has flexible, on-demand courses developed by small business owners, for small business owners. Learn on your schedule, with no time commitment or limit. Save your progress any time to fit courses into your busy schedule.

Why Consider Renting a Warehouse?

As you start your business or expand your operation, you might find yourself in need of a much larger space to manufacture or store products and inventory. In this case, you may find yourself in need of industrial or warehouse space.

Warehouses, manufacturing buildings, and multi-use spaces are all considered to be industrial properties. These spaces may be used for product or goods production, storage, fulfillment, or distribution.

This guide outlines everything you need to know about finding, evaluating, and leasing warehouse or industrial space — including what to look for, how to assess your needs, and the basics of commercial leases.

To explore broader planning topics, see How to Start a Business and How to Grow a Business.

Define Your Warehouse Requirements

• Determine what activities will take place in the space (storage, production, shipping)
• Calculate the current and future space needs in square feet
• Identify must-have features like dock doors, forklift access, cold storage, or racking systems
• Prioritize proximity to shipping carriers, highways, ports, or your customers

Types of Industrial Spaces:

• Warehouse space – Primarily used for storage and distribution
• Manufacturing space – Where products are created or assembled, may require zoning or infrastructure such as reinforced floors or power supply
• Flex space – A combination of both warehouse and manufacturing space

A distribution center, a subtype of warehouse, focuses solely on shipping products and not the building or assembly process.

Types of Warehouse Lease Structures Compared

Lease Type	Who Pays for What?	Best For
Gross Lease	Landlord pays most or all expenses	Tenants wanting predictability
Net Lease	Tenant pays taxes, insurance, etc.	Tenants wanting lower base rent
Triple Net Lease	Tenant pays almost all property costs	Experienced tenants with stable cash flow
Modified Gross	Shared responsibility (negotiable)	Mid-sized businesses seeking flexibility

To learn more about commercial leases, check out this Forbes breakdown and this Business News Daily guide.

Hidden Costs of Leasing a Warehouse

• HVAC installation and maintenance
• Equipment rental (forklifts, pallet jacks)
• Cleaning and janitorial services
• Snow removal or landscaping (in some regions)
• IT and communications setup (WiFi, ethernet)
• Security upgrades or surveillance systems

Always ask for a complete breakdown of CAM fees and utility estimates before signing.

Short-Term and Shared Warehouse Options

For startups or seasonal businesses, traditional leases might be too long or rigid. Consider:

• Co-warehousing: Rent only the amount of space you need. Exa
• On-demand warehouse space: Monthly or flexible term rentals
• 3PL partnerships: Outsource fulfillment to third-party logistics providers who offer space and services

Add-On: Warehouse Readiness Checklist Before Leasing

Task	Completed
Zoning check for your business use	[ ]
Budget calculated (base + CAM + extras)	[ ]
Utility and HVAC capacity evaluated	[ ]
Insurance requirements reviewed	[ ]
Internet and phone installation confirmed	[ ]
Accessibility for trucks and staff assessed	[ ]
Lease reviewed by legal counsel	[ ]
Landlord reputation and reviews checked	[ ]

Evaluating Warehouse Safety and Compliance

Before signing any lease, evaluate:

• Fire suppression systems (sprinklers, extinguishers, alarms)
• Emergency exits and signage
• Compliance with OSHA standards
• ADA compliance for staff and visitors
• Existing or required permits for your operations

Technology Considerations for Modern Warehousing

Consider whether the space supports:

• Security systems and smart locks
• Warehouse Management Systems (WMS)
• IoT sensors for inventory and temperature
• High-speed internet for operations and cloud-based systems

Sustainability and Efficiency Features

If energy efficiency or environmental impact is a priority:

• Ask if the building is LEED certified
• Inquire about solar panels, motion-sensor lighting, energy-efficient HVAC
• Look for facilities with recycling programs or low-emission policies

Preparing for the Lease Negotiation Process

Before negotiation:

• Get a market rent comparison for similar properties
• Outline your deal-breakers and must-haves
• Prepare to negotiate lease term length, rent escalations, and improvement allowances
• Bring in a commercial real estate attorney to review legal language

How to Budget for a Warehouse Lease

Budgeting goes beyond just monthly rent. Include:

• Base rent per square foot
• CAM and utility costs
• Tenant improvements (buildout)
• Property taxes and insurance
• Moving expenses and initial setup

Use this quick formula to estimate: Total Monthly Cost = Base Rent + CAM Fees + Utilities + Services

Renting Warehouse Space with Confidence

Leasing industrial or warehouse space is a major milestone for your business—one that can fuel growth, streamline operations, and improve logistics when done right. By clearly defining your space needs, exploring modern leasing options, evaluating costs thoroughly, and securing the right terms, you can confidently sign a lease that supports your business goals now and into the future.

Whether you’re launching a startup with limited storage needs or expanding into a full-scale distribution center, take time to research, ask the right questions, and seek expert advice. The perfect space is out there—one that fits your workflow, supports your team, and stays within budget.

And remember: You don’t have to navigate it alone. Commercial real estate professionals, attorneys, and free business advisors can be valuable allies in your search.

FAQs

What are CAM fees in a warehouse lease?

Common Area Maintenance fees cover shared services such as landscaping, security, or cleaning. These are usually billed monthly in addition to base rent.

How much does warehouse space cost in major cities?

In Newark, NJ, expect $2.00–$3.50/sq ft/month. In less dense areas, $0.85–$1.50/sq ft/month is typical.

What is co-warehousing?

A flexible, shared warehouse model that allows small businesses to rent only the space they need, often bundled with services like logistics or staffing.

What’s the difference between a warehouse and a fulfillment center?

Warehouses store goods long-term. Fulfillment centers are optimized for fast order picking, packing, and shipping.

Can I customize or modify warehouse space?

Yes, but tenant improvements must be negotiated in the lease. Ensure structural changes comply with building codes.

Are there warehouse options for startups?

Yes. Look into co-warehousing, month-to-month rentals, or shared fulfillment spaces to avoid long-term contracts.

What is the typical lease length for industrial space?

3–5 years is standard, though some flexible providers offer monthly or yearly options.

Do I need insurance to lease a warehouse?

Yes. General liability, property, and workers’ comp insurance are often required by landlords.

Is there such a thing as a green or sustainable warehouse?

Yes. Look for LEED-certified or energy-efficient spaces. Features may include solar panels, skylights, or high-efficiency HVAC.

Can I sublease extra space I’m not using?

Possibly. Subleasing is often allowed with landlord approval. Make sure it’s specified in your lease terms.