A print shop in Winnipeg turns down roughly $60,000 of spring work every year for one reason: the paper has to be paid for in March, and the client pays in June. The owner is not short of customers. He is short of money for 90 days, twice a year.
A working capital loan is a fixed lump sum you receive once and repay on a set schedule. A business line of credit is a revolving limit you draw from, repay, and draw from again. Loans fit one large expense you can size in advance. Lines of credit fit gaps that keep coming back.
Both products sit under the same umbrella of business financing options in Canada, and both are offered by banks, credit unions, and alternative lenders. What separates them is how long your money stays borrowed, and what those extra days cost you.
Working capital loan vs line of credit: the short answer
The fastest way to tell them apart is to look at what happens the day after you pay the balance to zero. With a term loan, the agreement is finished. With a line of credit, the limit is available again.
| Feature | Working capital loan | Business line of credit |
|---|---|---|
| How you get the money | One lump sum, deposited at funding | Draw what you need, when you need it |
| Interest charged on | The full amount, from day one | Only the balance you have drawn |
| Repayment | Fixed daily, weekly, or monthly payments | Minimum payment on the drawn balance |
| After you repay | Agreement closes | Limit refreshes and stays open |
| Typical term | 3 months to 5 years | Revolving, reviewed annually |
| Best suited to | A single known expense | A gap that repeats |
When a working capital loan is the better structure
You know the number. A $40,000 equipment deposit, a bulk inventory buy before a busy season, a payroll bridge while a large contract clears. The amount is fixed, the use is specific, and you want the payment locked so you can plan around it. Fixed payments make planning easier when your revenue is steady enough to absorb them.
When a line of credit is the better structure
You do not know the number, or the number changes every month. Receivables run 45 days behind payables. A supplier wants a deposit you cannot predict. You want money sitting there without paying for it until you touch it. That is exactly what a business line of credit in Canada is built to do.
So start with the shape of the gap. One-time and known, take the loan. Recurring and unpredictable, take the line.
What each one actually costs
Posted rates are the wrong place to start. The real cost of borrowing is the rate multiplied by how much money is out, for how long, and most business owners get caught on that second half.
Draw $20,000 against a $50,000 line for six weeks and you pay interest on $20,000 for six weeks. Take a $50,000 term loan for the same need and you pay interest on $50,000 for the full term, including the $30,000 that sat untouched in your account. Same rate, very different bill.
Where the extra charges hide
Lines of credit often carry a standby or annual fee for keeping the limit open, and some carry a minimum monthly interest charge whether you draw or not. Term loans usually carry an origination or administration fee deducted at funding, which means a $50,000 loan can land as $48,500 in your account while you repay the full $50,000. Ask for both numbers before you sign: the total cost of capital in dollars, and the effective annual rate.
Rates, prime, and the legal ceiling
Variable business credit in Canada is usually priced as prime plus a spread, so when the Bank of Canada moves its policy rate, your line of credit payment moves with it. A fixed-rate term loan does not. Since January 1, 2025, the criminal rate of interest under the Criminal Code has been an APR above 35%. Commercial loans to incorporated borrowers between $10,000 and $500,000 sit under a 48% ceiling instead. Anything above $500,000 falls outside the cap entirely. If you want the detail, we covered Canada's interest rate cap on business loans separately.
Ask for the total dollar cost before you compare rates. A line of credit at a higher posted rate frequently costs less over a year than a term loan at a lower one, because you are borrowing less money for fewer days.
The 3-question cash flow test
When an owner calls us genuinely unsure which one to ask for, three questions settle it in about two minutes.
1. Is the expense one-time or recurring?
One truck, one renovation, one acquisition deposit: that is a loan. Seasonal inventory every March and September, or payroll that runs ahead of collections most months: that is a line.
2. Can you name the exact amount today?
If you can write the number down without guessing, a loan prices it cleanly. If your honest answer is "somewhere between $15,000 and $60,000 depending on the quarter," a loan forces you to over-borrow and pay for money you may never use.
3. Does the money come back to you inside a year?
Cash that returns quickly, such as an invoice you will collect in 60 days, belongs on revolving credit or on invoice factoring. Cash that converts slowly, like a build-out that pays back over three years, belongs on a term loan with a matching term. Matching the repayment period to the payback period is the single most useful discipline in small business borrowing.
What if the answer is both?
It often is, and running both is normal. A term loan handles the fixed asset. A line handles the wobble in between. Honestly, most owners we speak with do not need a bigger loan. They need a smaller one that is available again next quarter, which is a different product entirely.
What Canadian lenders check before approving either
Banks and alternative lenders read the same documents. They weight them very differently, and that weighting is usually why one says no and the other says yes.
Your bank statements
Six to twelve months of business bank statements do most of the work. Lenders look at deposit consistency, average daily balance, NSF activity, and whether the account goes negative near the end of each month. Three NSFs in ninety days will hurt an application more than a mediocre credit score does.
Your credit files, both of them
There is a business credit file held by Equifax Canada and a personal one, and small business applications almost always touch both. Alongside that, unresolved arrears with the Canada Revenue Agency will slow any file down, because tax debt can rank ahead of a lender's claim.
Where the two lender types split
A chartered bank or the Business Development Bank of Canada underwrites to policy: time in business, profitability on filed statements, ratios, and security. Miss one threshold and the file stops. An alternative lender underwrites to the file itself, which is why a profitable business with one bad year, or a young company with strong deposits, can still get funded.
Solid Capital is a Canadian alternative lender built for exactly that gap. We work with business owners and homeowners the big banks decline or under-serve, and we read the whole file, meaning bank statements, revenue history, and business context, rather than stopping at a credit score. Applying takes about five minutes, there is no impact to your credit to apply, and a Canadian advisor reviews every file personally. For approved files, funding often lands within 24 hours. You can see what our review process looks like, or start an application at solidcapital.ca and find out which structure you qualify for.
The bank looks at one number. We look at the whole picture. There is a difference.
Frequently Asked Questions
What is the difference between a working capital loan and a business line of credit?
A working capital loan gives you one lump sum that you repay on a fixed schedule, and the agreement closes once it is repaid. A business line of credit gives you a limit you can draw from, repay, and draw from again, and you pay interest only on the amount you have actually drawn.
Which is cheaper, a working capital loan or a line of credit?
It depends on how long the money stays borrowed rather than on the posted rate. A line of credit is usually cheaper for short, repeating gaps because interest accrues only on the drawn balance. A term loan is often cheaper for a large, one-time expense you will repay over a set period.
Can I get a business line of credit in Canada with bad credit?
Yes, in many cases, though not usually from a chartered bank. Alternative lenders weigh recent bank statements, deposit consistency, and time in business alongside credit history, so a business with steady revenue can still qualify after a bank decline.
How much working capital can a Canadian business borrow?
Most alternative lenders size the amount against your recent deposit volume and revenue rather than applying a fixed maximum. Stronger, more consistent monthly deposits support a larger limit, and the offer is often structured as a loan, a line, or a combination of both.
Does applying for business financing affect my credit score?
Applying with Solid Capital involves no impact to your credit. Other lenders may run a hard inquiry at application, so ask whether the initial review is a soft pull before you submit anything.
Can I have both a working capital loan and a line of credit at the same time?
Yes, and many established businesses do. A term loan typically covers a fixed asset or a one-time project while a line of credit covers the month-to-month timing gaps, though every lender will look at your total existing obligations when sizing the second facility.
