The Difference between a Working Capital Loan and a Line of Credit

The Difference between a Working Capital Loan and a Line of Credit

Working capital loans and lines of credit are two options which people have when trying to get funds for business operations. Deciding which is right for you demands taking many things into consideration. First of all, you will want to know the differences between the two.

Line of Credit

LOC is one of the types of business loans. Here, the lender agrees to allow you to borrow money at any time you require, and up to a set limit. You will pay interest on what you borrow. Usually, it is an unsecured loan, but it can be turned into a secured one with collateral. A company might not qualify if its owner has bad credit or if it fails to demonstrate it has fine cash flow management. Therefore the ideal time to apply is when things are going fine, and not when your business has an emergency need for cash.

Working Capital Loans

These serve as alternatives to a traditional term loan. The interest rates of term loans tend to be lower than that of working capital loans, but higher than the line of credit.

These loans provide small businesses with alternatives to traditional loans and are easier to qualify for. Once approved, the money will reach your hands in a few business days. Such loans are ideal for a business with bad credit and cash flow issues.

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