Payroll is due Friday. Your biggest customer pays in 45 days. The bank balance doesn't care about either. The question is whether to take a lump sum or open a line you can draw on when you need it.
That is the choice between working capital loans and lines of credit. Both cover the day-to-day costs of running a business. They are built differently, though, and the wrong one can cost you interest you never needed to pay.
It is a common decision. In the Federal Reserve Banks' 2026 Report on Employer Firms, 56% of firms that applied for financing did so to meet operating expenses, the most common reason given.
The difference in one paragraph
A working capital loan is one lump sum repaid on a fixed schedule. A line of credit is a limit you can draw from, repay and draw again. With the loan, you pay interest on the full amount from day one. With the line, you pay only on what you have drawn, and only while it is outstanding.
A loan suits a need you can size today, like a $40,000 inventory order. A line suits needs that come and go, like a slow month every winter or a customer who pays late. Neither is better in general. The right one depends on how much you need, for how long, and how predictably the money comes back.
How a working capital loan works
You receive the full amount at closing and repay principal plus interest or fees in fixed installments over a set term. The money covers operating costs such as payroll, rent, inventory and supplies rather than long-term assets.
Online working capital loans tend to be short with frequent payments. Bank and SBA loans run longer with monthly payments. Published terms as of November 2026:
- OnDeck offers term loans "from $5K - $400K" with a "24-month maximum repayment term" and "predictable daily or weekly payments." It reports that "the average rate for term loans is 53.2% APR," based on loans originated in the half-year ending June 30, 2026 (OnDeck).
- Bluevine offers lump sums "up to $500K" from lending partners, "with predictable repayment terms up to 24 months," with the maximum reserved for the strongest applicants (Bluevine).
- SBA 7(a) loans can be used for working capital, and SBA's terms page caps working capital and inventory loans at 10 years (SBA). SBA's maximum 7(a) loan is $5 million, and SBA Express loans top out at $500,000 (SBA).
The main advantage of a loan is the fixed schedule: you know the payment and the payoff date. The cost is that you pay for the whole balance even in weeks you would not have needed it, and you cannot reborrow what you repay without applying again.
How a business line of credit works
A line of credit is revolving credit with a set limit that you draw on as needed, repay and draw on again, paying interest or fees only on the outstanding balance. The cash usually moves straight to your checking account.
Repayment varies. Some bank lines ask for minimum payments on the outstanding balance. Many online lines treat each draw as a small loan with its own schedule. Published terms as of November 2026:
- Wells Fargo BusinessLine: $10,000 to $150,000, priced "between Prime + 1.75% and Prime + 9.75%" depending on credit. The annual fee is waived the first year, then $95 for lines of $10,000 to $25,000 and $175 above $25,000. It requires personal guarantees, is available to businesses operating six months or more, and has "no annual review" (Wells Fargo).
- Bluevine: "credit lines up to $250,000" with "interest rates as low as 7.8% for top qualifying customers," repaid by weekly or monthly automatic debits (Bluevine).
- OnDeck: lines of $6,000 to $200,000, repaid over 12, 18 or 24 months on a weekly or monthly schedule, with "no origination fees, monthly fees or draw fees." Its average line of credit APR was 59.8% for lines originated in the half-year ending June 30, 2026 (OnDeck).
- American Express Business Line of Credit: line sizes "limited to $250,000" on qualification, priced with "monthly loan fees" of 0.55% to 1.55% charged as "a percentage of your principal spread out equally each month over the life of the loan" rather than an interest rate (American Express).
The bank prime rate was 7.00% as of November 5, 2026, according to the Federal Reserve's H.15 release. So the Wells Fargo range works out to 8.75% to 16.75% at today's prime.
Pro tip: When a line is priced as a monthly fee instead of an interest rate, ask for the APR and the total dollar cost of a typical draw before you compare it with anything else.
Side by side
| Feature | Working capital loan | Business line of credit |
|---|---|---|
| How you get the money | One lump sum at closing | Draw any amount up to the limit, when you need it |
| Interest or fees charged on | The full balance from day one | Only the amount drawn, while outstanding |
| Reborrowing | No, you apply again | Yes, repaid amounts become available again |
| Repayment | Fixed daily, weekly or monthly installments | Minimum payments at some banks; often a fixed schedule per draw online |
| Example bank pricing | Varies by bank; ask for the APR | Prime + 1.75% to Prime + 9.75% (Wells Fargo BusinessLine) |
| Example online pricing | 53.2% average APR (OnDeck, H1 2026) | 59.8% average APR (OnDeck, H1 2026); from 7.8% for top Bluevine customers |
| Common fees | Origination fees | Annual fees at some banks ($95 or $175 at Wells Fargo after year one); none of the origination, monthly or draw fees at OnDeck |
| Renewal | None once funded | Varies by lender; Wells Fargo BusinessLine lists no annual review |
| Best for | One-time needs with a clear payback date | Recurring gaps, seasonal swings, emergencies |
Renewal deserves a second look. A lender that reviews your line each year can shrink or close it if your numbers slip, so ask every lender how it handles reviews.
What each actually costs: a $60,000 example
Cost depends on the rate and on how long you carry the balance. A line costs less when you need the money for only part of the year, because you stop paying the moment you repay the draw.
A seasonal retailer needs $60,000 in September to stock up for the holidays, and holiday sales will repay it about 120 days later. The rates below are assumptions for illustration: 8.75% is the low end of the Wells Fargo range at today's prime, and the online rates are OnDeck's reported averages.
| Option | Rate assumed | How the money is held | Approximate interest cost |
|---|---|---|---|
| Bank line of credit | 8.75% | $60,000 drawn for 120 days, then repaid | About $1,726 |
| Bank working capital loan | 8.75% | $60,000 repaid monthly over 12 months | About $2,882 |
| Online line of credit | 59.8% APR | $60,000 drawn for 120 days, then repaid | About $11,796 |
| Online working capital loan | 53.2% APR | $60,000 repaid monthly over 12 months | About $18,659 |
The line figures use simple interest: $60,000 × rate × 120 ÷ 365. The loan figures use a standard 12-month amortization with no early payoff. All four exclude annual and origination fees. They also assume early repayment actually stops the cost, which is not true of every lender (see below).
Two lessons. At the same 8.75% rate, the line saves about $1,156, simply because the retailer stops paying in January instead of carrying the debt for a year. The bigger lesson is where you borrow: the gap between bank and online pricing dwarfs the gap between a loan and a line.
Check how early repayment is treated before you count on that saving. Fundbox, for example, says that if you repay early "we will waive the fees for the remaining period" (Fundbox). Other lenders charge the fee for the full term of each draw.
Why online costs surprise people
In the Fed's 2026 report, 60% of firms that borrowed from online lenders said costs were higher than expected, against 37% at small banks. Federal truth-in-lending rules exempt business credit (12 CFR 1026.3(a)), so whether you see an APR depends on your state. California requires providers to disclose the APR on commercial financing offers of $500,000 or less (California DFPI; regulation text), and New York's disclosure law covers financing up to $2.5 million (New York DFS). Elsewhere, ask for the APR and total cost in writing.
Who gets approved
Lines of credit were fully approved more often than business loans in the Fed's latest survey. In the 2026 report, 45% of business line of credit applicants were fully approved and 24% were denied. For business loans, 35% were fully approved and 30% were denied. Small banks had the highest full approval rate of any lender type, at 57%.
Published minimums vary:
| Lender and product | Credit score | Time in business | Revenue |
|---|---|---|---|
| Wells Fargo BusinessLine | Guarantors typically 680+ | 6 months | Not published |
| Bank of America Business Advantage Credit Line | Not published | 2 years | $100,000 in prior-year gross sales |
| Bluevine line of credit | 625+ | 12+ months | $10,000 a month |
| OnDeck line or term loan | 625 | 1 year | $100,000 a year |
| American Express Business Line of Credit | 660+ | 1 year | $3,000 average monthly revenue |
Sources: each lender's product page, checked November 2026. Bank of America figures are from its unsecured line of credit page.
Bluevine's line also requires a corporation or LLC, so sole proprietors need to look elsewhere. Most of these products require a personal guarantee. If your score is below these floors, see our guide to getting a business line of credit with bad credit, or see what you qualify for on Loanistry.
Which builds business credit?
Both can, if the lender reports to a business credit bureau and you pay on time. A line adds a second signal: how much of your limit you use.
Ask before you sign. Bluevine says "we report your repayment history to Experian." OnDeck says it reports to business credit bureaus without naming them on its line of credit page.
- Ask which bureaus receive your data. Dun & Bradstreet, Experian and Equifax keep separate business files, so a lender that reports to one helps only that file.
- Keep line balances low. Draw what you need and repay quickly.
- Never miss a scheduled payment. Daily and weekly payments create many chances for a late mark, so keep a buffer in the debit account.
Our guide to personal vs business credit explains what each file shows.
When a loan makes more sense
Pick a loan when you need a specific amount for a specific purpose and will use all of it for most of the term.
- A large one-time purchase, such as a bulk inventory buy at a supplier discount or staffing up for a new contract.
- You want a hard stop. A fixed payoff date keeps short-term debt from becoming permanent.
- You need a longer runway. SBA 7(a) working capital can run up to 10 years, which keeps payments low.
- You need more than a line will give. Wells Fargo's BusinessLine tops out at $150,000 and Bluevine's line at $250,000, while OnDeck and Bluevine offer term loans up to $400,000 and $500,000.
Example: a landscaping company wins a city contract that needs $45,000 of staff and supplies before the first invoice is paid. The amount is known, the payback is known, and a loan that runs about as long as the contract fits.
When a line makes more sense
Pick a line when needs are recurring, uneven or hard to predict.
- Seasonal swings. Retailers, contractors and tourism businesses that spend before the busy season and repay after.
- Slow-paying customers. B2B companies waiting on invoices can bridge the gap and repay when the check clears. Compare a line with factoring in invoice factoring vs a line of credit.
- An emergency buffer. At lenders without annual or draw fees, an unused line costs little to keep open.
- Frequent small needs. Drawing $5,000 at a time is cheaper than borrowing $60,000 "just in case."
Open the line before you need it. Your numbers look better to a lender before a cash crunch than in the middle of one.
The terms that change the real cost
- Fees and pricing format. Origination fees on loans, annual fees on some bank lines, and fee-based pricing such as American Express's monthly loan fees all need converting to an APR.
- How each draw is repaid. Many online lines give each draw its own schedule. Fundbox emails "your repayment plan" as soon as you draw and collects weekly by ACH, so several draws can mean several overlapping schedules.
- Renewals and reviews. Ask whether the lender reviews the line each year and what can change at review.
- Guarantees and liens. Wells Fargo requires personal guarantees on BusinessLine, and many lenders file a UCC lien, a public notice of their claim on business assets that the next lender will see.
- Tax treatment. Ask your tax adviser how interest and fees on either product are treated for your business.
Using both
Many businesses use a loan for planned one-time needs and keep a line open as a standby buffer. A restaurant group might take a 12-month loan to open a second location and keep a line untouched for slow weeks and repairs.
The risk is stacking payments. Before adding a second product, add up every daily, weekly and monthly debt payment and check that the total fits inside your average cash flow with room to spare. When you are ready to compare real offers side by side, compare loans and lines on Loanistry.
Sources
- Federal Reserve Banks: 2026 Report on Employer Firms (summary page), checked November 2026
- Federal Reserve Banks: 2026 Report on Employer Firms (PDF), checked November 2026
- OnDeck: Business term loans, checked November 2026
- OnDeck: Business line of credit, checked November 2026
- Bluevine: Business line of credit, checked November 2026
- Wells Fargo: BusinessLine line of credit, checked November 2026
- Bank of America: Unsecured business lines of credit, checked November 2026
- American Express: Business Line of Credit, checked November 2026
- Fundbox Help Center: How do repayments work?, checked November 2026
- SBA: 7(a) loans, checked November 2026
- SBA: Terms, conditions, and eligibility, checked November 2026
- Federal Reserve Board: H.15 Selected Interest Rates, checked November 2026
- CFPB: Regulation Z, 12 CFR 1026.3, Exempt transactions, checked November 2026
- California DFPI: Commercial financing disclosure regulations effective December 9, 2022, checked November 2026
- California DFPI: Commercial financing disclosure regulation, final text, checked November 2026
- New York DFS: Updated regulation for commercial financing disclosures, checked November 2026