External financing can be a great way to help you reach your business goals, but with so many different terms, rates, and fees, it can be difficult to compare financing options. So, how much does a line of credit cost, and how does that compare to the cost of a term loan?

Term Loan Vs Line of Credit:Typical Uses

While they are both types of debt capital, lines of credit and term loans have very different uses in small business finance. For a deep dive into the differences between term loans and lines of credit, check out our article: Term Loans and Lines of Credit: What’s the Difference?

In general, lines of credit and term loans are best used for the following small business expenses:

Line of Credit

• Inventory
• Payroll
• Seasonal working capital
• Short term costs

Term Loan

• Equipment
• Real estate
• Start-up capital
• Larger costs
• Longer time needed to repay

Term Loan and Lines of Credit Cost Comparison

Interest rates

, annual fees, principal, and credit scores can make for a confusing time when it comes to comparing term loan and line of credit cost. To help you determine the best financing option for your business, we’ve broken the costs down into a side-by-side comparison.

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What is the Prime Interest Rate?

Prime or the prime interest rate

is the prevailing interest rate that traditional banks charge to customers with excellent credit scores. The prime rate is usually the same as the interest rate set by the US Federal Reserve. If your credit score could use some improvement, you will likely be charged more than prime.

Merchant Cash Advance (MCA)

Merchant Cash Advances or MCA are another common type of business financing. When a small business owner takes out a merchant cash advance, they’re given cash up front, which they repay through a predetermined percentage of their daily debit and credit card sales. This can be a great lending option for businesses with fairly stable debit and credit card sales, but it is also a common vehicle for predatory lending practices. If you are considering a Merchant Cash Advance, make sure you read and understand the terms carefully before agreeing to the loan.

Cost vs Flexibility

All three of these popular loan options have pros and cons that you need to consider before choosing a loan for your business. The chart below helps you consider the total cost of a loan verses the flexibility of it’s repayment terms (i.e. how much and how often you will make payments).

Which is Right for Your Business?

Comparing the cost of term loans and lines of credit can feel a bit like comparing an apple and an orange. If you are considering an MCA as well, the decision can get even more confusing. The best way to decide what is right for your business is to start with what your business can afford in terms of monthly or weekly payments, what the loan will be used for, and what loan terms work best for your business’s financial situation. Once you have that list, you can start comparing it to different financing options to find the best fit for your business.

Financing with Accion Opportunity Fund

If you do decide that a term loan is right for you and your business, consider working with Accion Opportunity Fund. At Accion Opportunity Fund, our goal is not only to help you get the funding and support you need to launch your business, but to help you grow and thrive once you’ve got your foot in the door. Accion Opportunity Fund is a government-regulated, non-profit financial institution with a mission to help small business owners reach their goals. Find out more about our small business loan program and apply online today.

Disclaimer: Average interest rates and typical loan terms can change rapidly, so please thoroughly check with any provider to confirm rates and terms.

Learn More About Business Financing

When it comes to your finances, you want clear guidance and easy to implement tools based on your unique needs. Visit Accion Opportunity Fund. to get started strengthening your financial management and meeting your goals.

Experience a different kind of financial education. Learn with AOF has flexible, on-demand courses developed by small business owners, for small business owners. Learn on your schedule, with no time commitment or limit. Save your progress any time to fit courses into your busy schedule.

Co-working spaces are becoming more and more popular – they offer a kind of flexibility that’s new in the commercial leasing world. Lots of companies, especially smaller ones, have changing needs for space and the newest generation of workers want to break out of cubicles and work in a different kind of environment. Co-working spaces can offer all of that – is a co-working space right for your business?

 

The Basics of Co-Working Spaces

First, what exactly is a co-working space? It’s basically what it sounds like – a cooperative business working environment. The Harvard Business Review (HBR) defines co-working as “membership-based workspaces where diverse groups of freelancers, remote workers, and other independent professionals work together in a shared, communal setting.” In other words, lots of different companies and individuals work together in the same spaces.

Some co-working spaces offer large communal work areas, some offer various sizes of offices, and some offer a mix of both. They all tend to have flexible leasing terms – often month-to-month rather than the multi-year terms of many commercial leases. They also frequently offer various networking opportunities and events to bring members together. Many specifically cater to incubating new startups and linking them up with other companies and individuals that can help them grow. And lots of them offer interesting workplace perks – beer on tap, ping-pong tables, arcade games, and more.

 

What’s So Great About Co-working?

HBR has found positive correlations between co-working and increased work happiness and productivity. In fact, on the thrive scale, researchers have found that co-workers report “levels of thriving that approach an average of 6 on a 7-point scale. This is at least a point higher than the average for employers who do their jobs in regular offices.”

Employees who are thriving are productive and satisfied – not just with their own roles, but with the overall company and their place within it. Thriving employees are energetic and invested. They also less likely to report corporate burnout. Isn’t that what all companies want for (and from!) their employees?

Entrepreneur and business owner Nicole Vasquez saw an unmet need for a co-working space in her Chicago community, so she created The Shift. Nicole used a $7,000 loan from AOF partner Allies for Community Business to turn a former laundromat into a 30-space work station co-working center. The Shift allows its co-workers to schedule flexible working hours in a bright, airy location.

One hallmark of The Shift is that it’s inclusive to professionals across all industries. The Shift’s roster of co-workers span a wide variety – from public education to nonprofit management to marketing, even writing and consulting.

In addition to co-working spaces, The Shift hosts classes and educational events for the local community. Nicole feels that The Shift provides a unique, collaborative co-working space for professionals across different industry spectrums, as well as a positive boost to the community.

Long story short, a co-working space can provide an interesting, exciting work environment that can inspire you and your employees. But it’s not right for everyone – so how do you decide?

 

Pros of Co-Working Spaces

First, people just like working in co-working spaces. Employees using co-working spaces are more likely to view their work as meaningful. It’s interesting to note that this impression is not based on the type of work or industry.

Why is this? There are a few theories. The first is that because co-working brings together a community of different titles, interests, corporate roles, and industries, co-workers are more likely to work comfortably side by side, rather than in direct competition with one another. Workers report that not having to jockey for rank in a business community can be a welcome relief.

Second, the nature of the co-working space fosters a collaborative atmosphere that a traditional business space doesn’t. Since each person in the co-working arrangement has such unique skills, they can bring more to the table and work to help others out.

Third, it’s easy to adjust a co-working space to your business’s unique needs in real time. Hiring someone new? Upgrade to a bigger office next month! Downsizing? Move to a smaller one! These spaces also offer flexibility for people that want to work remotely – they can come into the office when necessary and work from communal areas but you don’t have to have a dedicated space for a person that’s in the office once a week.

 

Cons of Co-Working Spaces

Scheduling at these kinds of spaces can be a boon or a curse. Co-working spaces often offer access to their facilities at all hours, day and night. For some workers, this may be a great thing, allowing them to schedule work when it’s most convenient for them (some folks are just night owls!). But for others, this may mean they feel pressure to be “on call” at all hours. It can be hard for some workers to set clear work/life boundaries when co-working, when it’s known that they “could” be at the office 24 hours a day.

This may be a particular issue in billable fields, where the sun rises and sets on the billable hour; e.g., lawyers, accountants, and certain consultants. In order for employees to avoid burn-out, it’s important to delineate certain working hours and set clear expectations, so they don’t feel as though they are constantly on the clock.

With clear parameters for what’s expected regarding holidays, weekends, and late hours, you can help avoid that pressure.

Co-working spaces offer an open flexible environment, and as with 24-hour access, this is a double-edged sword. Some employees revel in complete autonomy to do their work and feel more productive and empowered. Other employees may need the structure and leadership of a traditional office environment.

Ultimately, it will be a managerial judgment call whether certain employees will fly or sink in a co-working environment. You know your employees, your industry, and the nature of your tasks the best – so look closely at whether co-working makes sense for your unique staff and company needs. If your corporate culture would benefit from co-working, it’s worth exploring.

Finally, co-working spaces can be pricier than traditional office alternatives. Providing a well-designed, fully stocked, and workable business space doesn’t come cheap. The cost of providing multiple full service co-working spaces may rival the cost of one traditional office space. You’ll need to consider whether you’ll need to invest in newer, expensive technology to make co-working effective – for example, by implementing video conferencing software or purchasing updated computers.

The only way to make a fact-based assessment is to crunch the numbers. What does it cost to run your current or desired business space? What would it cost to run your co-working space for each of your co-workers?

Cost is not THE only factor – if you think that co-working may make your employees more productive, more satisfied, and more energized, than a larger cost may be offset by the benefits. You’ll have to look at the hard numbers, then weigh the intangibles to make the call.

 

The Co-Working Call

Co-working is a trend that seems to be here to stay. Many people, especially younger workers, love the communal and flexible environment. The networking opportunities are also terrific for a new business – you have the chance to meet lots of other entrepreneurs and share your stories, struggles, and advice. Businesses, especially startups, like the flexibility in terms of office size, lease duration, and how they can use the space.

But again, it costs money. And you’ll need to seriously evaluate your own workplace needs and those of your employees. It’s a lot of fun to have a ping-pong table at the office, but some people just need more structure (and less temptation) than that. Even if your own employees aren’t tempted by the interesting activities around the office, other people will be and that kind of bustle can be distracting.

At the end of the day, it’s all about the unique needs of your business. Do you expect your needs for office space to change? Do you and your employees want an open and collaborative workspace with other startups or would you prefer a dedicated area for your business? Do the costs make sense? If you’re curious, there’s almost definitely a co-working space near you. Go check it out and see what all the fuss is about!