Working capital vs. a business line of credit

Working capital gives you one lump sum for a specific need and you repay it over a set term. A business line of credit gives you a limit you draw from whenever you need it, and you pay only on what you use. If you know exactly what the money is for and how much, working capital fits. If your needs come and go, a line of credit fits.

How working capital works

Working capital is funding for the short-term costs of running your business. You receive the full amount at once, then repay it on a fixed schedule over 5 to 12 months.

It works best when the need is clear and has an end date:

• Payroll during a slow stretch.
• A large inventory order before your busy season.
• A repair that has to happen now.
• A marketing push for a new product or location.
• A tax bill that came in bigger than expected.

The strength of working capital is simplicity. You know the amount, the schedule and the total payback on day one. The money goes to work right away, and the term is short enough that you finish repaying as the purchase pays off.

How a business line of credit works

A business line of credit is a revolving limit. You draw $1,000 or more at a time, repay it, and draw again. You pay only on the amount you have drawn, not on the full limit.

At Royal Funding Group, there is no cost to open a line and no annual fee. Limits go up to $5M. That makes a line a strong safety net: you set it up while things are calm, and it sits ready for the month a big customer pays late or a piece of equipment fails.

It works best when needs are recurring or hard to predict. Think of uneven monthly revenue, frequent small purchases, or a business that wants a cushion without paying for money it is not using.

The key differences

How you receive the money. Working capital arrives as one lump sum. A line of credit lets you take what you need, when you need it.

How you repay. Working capital has a fixed schedule over its term. A line of credit is repaid on what you draw, and repaying frees up that amount to draw again.

What it costs. With working capital, you pay to use the full amount from day one. With a line of credit, you pay only on what you draw. Either way, the right comparison is total payback for the way you will actually use the money.

Best use. Working capital fits a defined, one-time need. A line of credit fits ongoing or surprise needs.

Three quick scenarios

Say a landscaping company needs $40,000 in March to buy mulch, plants and fuel before spring jobs start. The need is one amount, one purpose and a clear payback as spring invoices come in. Working capital fits.

Say a plumbing and HVAC company has steady work, but every few weeks a customer pays late or a van needs a repair. The amounts vary and the timing is unpredictable. A line of credit fits, because the owner draws only when something comes up.

Say a restaurant wants both: a one-time renovation of its patio and a cushion for slow winter weeks. Using working capital for the patio and a line of credit for the cushion keeps each tool doing the job it does best.

If one of these sounds like your business, you can apply in two minutes and a specialist will tell you which fits.

Can you have both?

Yes. Many owners use working capital for a specific project and keep a line of credit open for everything else. Because a line of credit has no cost to open and no annual fee, it costs nothing to keep on hand when you are not using it.

Your specialist looks at your revenue pattern and your plans, then shows you options for each. One application gives you access to multiple options through our network of funding partners.

How to compare your offers

Ask the same questions of every offer:

1. What is the total payback for the amount I plan to use?
2. What is the payment schedule, and does it fit my cash flow?
3. Are there any fees, and when are they charged?
4. Is there an early payoff discount? (Most of our programs have one.)

The funding calculator and line of credit calculator help you see how payments fit your monthly revenue before you decide.

Who qualifies

You need 12 or more months in business and a U.S.-based business. This is business financing only, not personal loans, and startups and pre-revenue businesses are not funded at this time. We work across a wide range of credit scores. Under 550, options are limited. From 550 to 650 is a good fit for most programs. Above 650 gets the best pricing and highest limits.

Find out which one fits your cash flow

Tell us what you need the money for and how your revenue comes in, and your specialist will show you working capital, a line of credit, or both, with real numbers side by side. Approvals come in hours and funding lands the same day. Apply in two minutes or call (929) 506-8133.