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Comparison
Working capital advance vs. line of credit vs. term loan
These three get compared constantly and usually badly, because they solve different problems. The advance solves "now". The line solves "again and again". The term loan solves "this one big thing". Start from your problem.
Side by side
| Advance | Line of credit | Term loan | |
|---|---|---|---|
| Solves | A short, urgent gap | Recurring, temporary gaps | A planned, larger purpose |
| Cost quoted as | Factor rate | Interest on drawn balance + fees | APR |
| How to compare cost | Estimated APR via the calculator | Interest plus draw and maintenance fees at your usage | Stated APR plus fees |
| Speed | Hours to a day | Days to weeks | Weeks |
| Qualification | Deposits and time in business (provider-set) | History and credit (provider-set) | Financials and credit (lender-set) |
| Flexibility | None once signed | High: draw and repay | None once signed |
| Early payoff | Rarely saves money | Always saves interest | Usually saves interest |
| Payments | Daily or weekly | Monthly minimums | Monthly |
A 12-month picture
Illustration: a business has three $15,000 gaps a year, each lasting 60 days. With a line, it pays interest on $15,000 for about six months in total. With three advances, it pays a full factor three times, and the daily debits from one gap overlap the next. With a term loan for $45,000, it pays interest on money it needs only a third of the time. On these assumptions the line has the lowest total cost for recurring gaps; run your own numbers with the calculator.
Picking in practice
- Recurring gap and you qualify for a line: take the line, even a small one, and grow it.
- Recurring gap and you do not qualify yet: use one advance as a bridge while you build six clean months of statements, then apply for a line.
- One big purpose with a long payoff: term loan or equipment financing.
- One short gap, right now: advance, sized to the gap, with an exit.
What Fast Mula is and isn't. Fast Mula helps you compare business-funding structures and submit one inquiry. Nothing on this site is an offer, approval, guaranteed rate, or guaranteed timeline. Any funding depends on a provider's own review, and terms vary by state.
Common questions
Is a line of credit better than a loan?
They solve different problems: a line fits recurring or uncertain needs; a term loan fits a single defined purchase. Compare written total cost for your pattern of use.
Why is a line harder to get than an advance?
A line is an open-ended commitment priced at a low rate; the lender bears more risk for less reward, so it wants a stronger file.
Related
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