Working capital loan or line of credit — which do you need?

A lump sum suits a single dated obligation: a stock buy, a tax bill, materials for one job. You take it, you repay it, it ends.

A line suits a gap that recurs. Payroll every fortnight against invoices paid every sixty days is not one event, and financing it with a series of lump sums means paying for money you are not using between the gaps.

The test is not size, it is repetition. A large one-off is a loan; a small recurring shortfall is a line.

On a loan you pay the full cost of the full amount from day one, whether the money sits in the account or not.

On a line you pay only on the drawn balance, so a facility used for ten days a month costs a fraction of a lump sum of the same size. Some carry an unused-line or maintenance fee, which is worth asking about.

That is why the line is usually the cheaper answer for a recurring gap even at a higher headline rate.

Qualification. A revolving facility is riskier for the provider, so lines carry the highest bar of the four products — typically a score around 600, a year or more of trading, and steadier revenue.

Speed. A loan or advance can fund in days; a line often takes longer to put in place.

The sensible sequence is to take the lump sum you can get now, repay it cleanly, and use that record to put a line in place before the next gap — a facility is worth far more arranged in advance than sought in a crisis.