What’s the difference between a working capital loan and a business line of credit?

Q: What’s the difference between a working capital loan and a business line of credit?

A business line of credit is a revolving account that you can draw from as needed up to a limit, repay, and draw again. It’s very flexible and you only pay interest on the amount you use. A working capital loan (term loan) is a lump sum you borrow once and repay over a fixed schedule. Lines of credit are great for an ongoing cushion or repeated cash needs; loans are better for one-time needs or specific events. For example, if you want a safety net for unpredictable expenses, a line of credit is handy. If you have a planned expense (like a one-time bulk inventory purchase), a short-term loan might do the job. Many franchise owners set up a line of credit for general working capital and only resort to term loans if the line is insufficient or if they need extra beyond the credit line.

A business line of credit is a revolving account that you can draw from as needed up to a limit, repay, and draw again. It’s very flexible and you only pay interest on the amount you use. A working capital loan (term loan) is a lump sum you borrow once and repay over a fixed schedule. Lines of credit are great for an ongoing cushion or repeated cash needs; loans are better for one-time needs or specific events. For example, if you want a safety net for unpredictable expenses, a line of credit is handy. If you have a planned expense (like a one-time bulk inventory purchase), a short-term loan might do the job. Many franchise owners set up a line of credit for general working capital and only resort to term loans if the line is insufficient or if they need extra beyond the credit line.