If your business has a summer season, the follow-up question is how to fund what you’ve committed to. Lines of credit and working capital loans look similar on the surface and behave very differently in your cash flow. Picking the wrong one can cost you more in interest than the inventory will earn in margin.

Quick Definitions

A business line of credit is a flexible, revolving facility. You draw what you need, and you pay interest only on the drawn balance. A working capital loan is a lump-sum, term-installment loan. You receive the full amount upfront, then pay it back on a fixed schedule.

When a Line of Credit Wins

• Your inventory needs are uneven — some weeks you need more, some weeks less.
• You expect to pay down quickly as inventory sells through.
• You want a facility that stays open for repeated use across seasons.

When a Working Capital Loan Wins

• You need a known, defined amount on a specific date.
• You want predictable monthly payments you can build into your budget.
• You prefer a defined end date to the debt.

The Real Cost Comparison

A line of credit at 9 percent used for 60 days on $50,000 of inventory costs you roughly $750. A working capital loan at 8 percent on $50,000 over 12 months costs you roughly $2,200 in total interest. The loan looks cheaper on rate. The line is dramatically cheaper in practice if you actually pay it down as inventory sells.