Working Capital Loan vs Line of Credit: Which Wins in 2026
These two products solve different problems. Picking the wrong one costs money — either in unused capital sitting on your books or in repeated short-term loans you should have consolidated into a revolver.
Use a term loan when…
The capital need is defined and one-time: an acquisition, a build-out, an equipment purchase paired with installation costs, a marketing investment with a known burn rate. Fixed payment, fixed end date, predictable amortization.
Use a line of credit when…
Need is recurring or unpredictable: covering AR gaps, seasonal inventory builds, payroll bridge, opportunistic vendor discounts. You pay interest only on the drawn balance and reuse the facility as you repay.
Pricing reality
Bank LOCs price 7–13% APR but take 30–60 days and require strong financials. Non-bank LOCs price 15–35% APR and fund in 5–10 days. Term loans run 12–45% APR depending on credit and time in business.
The hybrid trap
Operators often stack three or four short-term loans rather than refinancing into a single LOC. The math almost always favors consolidation by month 9. If you've taken 2+ MCAs in the last 12 months, request an LOC quote before the next renewal.
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