Line of Credit vs Working Capital Solutions: Which Should You Choose?

Financing through a challenging economic climate or a rapid change in your business such as unexpected orders, sudden growth, or entering a new market can be daunting. Choosing the right solution for financing through the changes can change the way you use the capital, when, and how much you choose to draw. Let’s dive into a few key differences when choosing between a common line of credit from your bank, or selecting a working capital solution from a partner specializing in specific industries and capital solutions.

What is a Business Line of Credit?

A business line of credit is a common type of loan offered by banks and other financial partners. It allows you to access a predetermined amount of money that you can draw down as needed, up to the limit set by your lender. The interest rate on business lines of credit varies greatly depending on factors such as the health and age of your business, your creditworthiness, and how much you’re borrowing. Lines of credit are generally easier to obtain than business loans due to the business credit score, and the amount of the loan. They are typically unsecured loans, meaning they do not require collateral to back them up, but they can also be secured if you have a substantial source of collateral such as real estate or business equipment.

How Are Working Capital Solutions Different?

On the other hand, working capital solutions offer quick access to funds with less stringent requirements. Working capital solutions are designed for businesses that can’t access business loans and lines of credit from traditional lenders due to factors such as business size, creditworthiness, or the amount of working capital needed. These solutions often require fewer documents than business loans and may be tied to assets such as accounts receivables, but the funds may be available within a few business days unlike a longer due diligence process from a bank.

Determining Which Is The Right Path For My Business

The main differences between a business line of credit and working capital solutions are the requirements, turnaround time, and business size. If you’re a business owner in need of quick capital without stringent requirements, working capital solutions may be the way to go. However, if you have an established business and can meet the requirements for a business loan or line of credit from your bank, this option may be the better choice.

No matter which financing option you choose, remember that each business has its own unique needs and situation. When comparing line of credit vs working capital solutions, make sure to weigh all the factors before making a decision. Doing so can ensure you select the best solution for your business’s current and future financial health.  If you need help determining the right working capital solution for your business, contact one of our business capital specialists today for a consultation.