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Working Capital Solutions: Bridge Loans vs. Business Lines of Credit

Cash Flow & Working Capital – What is the Difference? 

Do you use cash flow and working capital accounting when making financial decisions for your business?

Understanding financial mechanics is crucial for any business’s success, which is why most accountants recommend including cash flow and working capital in business calculations. What exactly are cash flow and working capital and how are they related, though?

Let us start with cash flow. In brief, cash flow is all the money available for your current short-term duties within a given timeframe. Those short-term duties could be paying your employees and rent, buying chemicals or other materials to get the job done, or money for your next advertisement. Simple cash flow can be calculated using this formula: All profits – All expenses = Simple Cash Flow. As the name suggests, cash flow is focused on available money but there are other assets that are not taken into account here, so let’s have a look at working capital. 

Working capital allows you to make statements about your business’s overall financial health by looking at its current assets and liabilities; that’s also the formula to calculate your working capital: Current Assets  – Current Liabilities = Working Capital. As said before, cash flow focuses on money, and working capital focuses on assets, such as your business’s building, any inventory, equipment, or your fleet. Liabilities could be a mortgage, interest payable, unearned revenues, etc. Cash flow and working capital, when viewed together can provide an evaluation of your business’s financial health.  


The Benefits of Working Capital Solutions for Businesses 

Rising gas prices, recessionary forces, and inflation are very real and show how quickly and unpredictably costs can rise. If a company does not have a positive cash flow, it may end up needing to use its savings or must sell assets to cover short-term costs which result in reduced working capital. That may work for a short period of time but can quickly result in a downward cycle and threaten a business’s existence. 

A great solution to break that cycle is making extra working capital available, so you can keep your business going when your cash flow is slow. Working Capital Solutions are smart and easy. By giving you access to additional funds when needed, they can help you weather negative cash flow periods without sacrificing marketing expenses, payroll, or money-making assets. In times of positive cash flow, additional working capital can be beneficial and provide an extra boost for your company’s growth, giving you the funds you need to take advantage of growth opportunities. To sum up, here are some common situations where Working Capital is beneficial: 

  • Waiting for an invoice to be paid or working through an insurance claim. 
  • Responding to a natural disaster, where customer payments may be delayed. 
  • Purchasing new inventory or vehicles, e.g., an up-fitted box truck. 
  • Expansion of your company, like buying a building or an existing business. 
  • Working on insurance projects, where payment may take longer to receive. 
  • Hiring, promoting, and training employees.  

Your company can benefit from having extra working capital available, whether times are lean or bountiful. So, what kind of working capital solution would be best for your business? 

Bridge Loans

Bridge Loan

Bridge loans are short-term loans, also known as gap financing, swing loans, or interim financingAs the name suggests they are loans meant to bridge the gap to cover the costs until funds become availableBridge loans are commonly used when a business or homeowner wants to purchase a new home but is waiting for their current property to sell. Bridge loans are also commonly used in restoration and construction projects when the contractor needs to buy additional equipment or materials but won’t be paid until work is completed. Since funds are expected to become available within the next few months, contractors use a bridge loan to maintain their liquidity. Generally, bridge loans are not limited to specific transactions, they can be used for any event where someone needs money to bridge a revenue gap. 


Business Line of Credit 

Another Working Capital Solution is a Business Line of Credit. These lines of credit provide business owners with a pool of funds that they can draw from as needed. Business Lines of Credit usually have fixed draw rates and let the business owner determine how quickly they will pay back the draw. Credit limits are determined based on the revenue the business brings in annually and can grow as your business grows.  This creates a flexible product that is perfect for both small and large short-term transactions, with the benefit of fixed rates. With our Business Line of Credit, there are no monthly service fees when the line is not in use and no draw requirements beyond the initial setup.

Business Lines of Credit are an excellent option for companies that are interested in flexible short-term financing options, with the ability to borrow and pay off the funds on their own timetable.  

Interested in learning more about Bridge Loans and Business Lines of Credit? Contact Aztec Financial at 855-252-7233 or apply online at to see how much you can qualify for. Applying will not harm your credit score, and we will place you in touch with a finance specialist to determine which option is best for your needs. 


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This article was originally published on Aztec Financial's blog.

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