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Small Business Working Capital Loans

At some point as a business owner, you might encounter some regular expenses that can’t be paid directly out of pocket.  That’s where working capital loans come in. If your revenue stream isn’t always steady, this form of funding can help you fill in those financial gaps and pay for day-to-day business expenses.

What Is Working Capital?

Working capital is the difference between a company’s inventories and assets, such as cash and unpaid invoices, and its liabilities, including accounts payable, or debts that are still owed to creditors.

What Is A Working Capital Loan?

Working capital loans are loans that are used to finance a company’s daily expenses and operations such as small supply purchases, rent and payroll. They typically have shorter repayment terms than other, larger loans and are not meant for financing long-term investments.

Types of Working Capital Loans

Short Term Loans

Short term loans are loans that have much shorter repayment terms than a standard term loan. These are typically paid off within just a few months, although some may carry repayment terms of up to one year.

Installment Loans

An installment loan is a type of term loan that is repaid over a set period of time through a number of regularly made payments, or installments. Repayment periods range from a few months to a few decades, depending on the requirements of the lender, the amount of the loan and the borrower’s financial qualifications.

Lines of Credit

A line of credit gives borrowers access to funding as they need it, up to a specific amount that is set by the lender. With a line of credit, the borrower only pays interest on the cash that they use, and can make multiple withdrawals before hitting the credit limit. This type of funding can be helpful to business that are looking for a way to manage their cyclical expenses.

MCAs

With a merchant cash advance, a lender or financing company advances the borrower a specific amount of money that is repaid from a percentage of the business’ daily credit or debit card sales, along with interest and fees. This is one of the more expensive and less regulated forms of business financing.

Invoice Factoring

If you have several unpaid invoices and want a cash advance, selling those invoices to a factoring company might be the right option for. With this form of funding, the borrower is issued an advance of a portion of their unpaid  invoices in one lump sum, and reimburses the lender as the invoices are paid, minus the fees for the advance.

SBA Loans

Small Business Administration (SBA) loans are by far some of the most affordable loans in the business lending industry. The SBA is a U.S. government agency that aims to give well-qualified small business owners access to both small and large amounts of funding.

How Much Working Capital Is Needed For A Business Loan?

Because the amount of working capital is an indicator of a company’s financial health, it’s important to have enough verifiable working capital to manage not just day-to-day expenses, but also enough to handle any minor emergencies or unexpected expenses. This amount will depend on the type and size of the business.

Pros & Cons of Working Capital Loans

Pros

  • Well qualified borrowers may be eligible for extremely low rates, particularly with SBA loans
  • Many online lenders are easy to apply to
  • Many lenders offer quick funding times
  • Potential for flexible repayment terms
  • Different options for working capital loans are suitable for a variety of businesses and borrowers

Cons

  • Sometimes come with extremely high rates, with some lenders offering products with rates as high as 99%
  • Can be difficult for new businesses or borrowers with bad credit scores to qualify for

Best Working Capital Loan Options

Fast Financing – OnDeck

Pros:

  • Low minimum credit score of 500 for term loans and 600 for lines of credit
  • Funding within as little as 24 hours
  • Access to amounts of up to $500,000
  • Short, online application

Cons:

  • Potential for high interest rates, with APRs as high as 99% for term loans and 63% for lines of credit
  • Daily or weekly repayments
  • Short repayment terms between 3 and 36 months

Min. Credit Score: To qualify for an OnDeck loan you should have a credit score above 500, or a score above 600 for a line of credit.

Loan Amount: OnDeck offers loans between $5,000 and $500,000 and lines of credit up to $100,000.

Term Loan

Loan Amounts $5,000 – $500,000
APR Range Starting at 9%
Repayment Terms 3 to 36 months repaid daily or weekly
Time to Funding As fast as 1 day
Click “Check Rates” to apply to OnDeck

» MORE: Ondeck loan review  for fast financing

Startups & Unpaid Customer Invoices – Fundbox

Pros:

  • Only requires three months of invoicing history or time in business
  • Potential for rates as low as 10.1% with their invoice financing product and 11.4% for lines of credit
  • Next-day funding
  • Easy, online application
  • Access to 100% of the value of unpaid invoices

Cons:

  • Potential for interest rates as high as 78.6%
  • Maximum line of credit amount of $100,000

Min. Credit Score: Fundbox does not have a minimum credit score and instead looks at applicants’ annual revenues and other financial qualifications.

Loan Amount: Borrowers can access between $1,000 and $100,000 through Fundbox.

Invoice Financing

Loan Amounts $1,000 – $100,000
APR Range 10.1% to 79.8%
Repayment Terms 3 to 6 months – equal repayments
Credit Score No minimum personal credit score required
Time to Funding A few minutes to several days
Click “Check Rates” to apply to FundBox

» MORE: FundBox for invoice financing

Poor Credit & Fast Cash – Kabbage

Pros:

  • Quick working capital line of credit of up to $250,000
  • Easy, online application
  • Provides fast access to cash, with loans funding in as little as a few minutes
  • Holistic application evaluation makes it easier for borrowers with average credit to get approved

Cons:

  • Short repayment periods
  • Complex repayment structure
  • Potential for high annual percentage rates, with a maximum rate of 99%

Min. Credit Score: Kabbage requires a minimum credit score of 560.

Loan Amount: Borrowers can access between $2,000 and $250,000 through Kabbage.

Loan Amounts $2,000 – $250,000
APR Range 24% – 99%
Repayment Terms 6, 12 or 18 months
Time to Funding A few minutes to several days
Credit Score 560+
Click “Check Rates” to apply to Kabbage

» MORE: Kabbage business loans for poor credit and fast cash

Good Credit – Credibly

Pros:

  • Decision made within just 24 hours
  • Quick to fund
  • Easier for young businesses to qualify
  • Prepayment discounts
  • UCC-1 filing not required for loans below $100,000

Cons:

  • Daily or weekly repayment
  • High annual percentage rates
  • Difficult for low-revenue businesses to qualify, with a requirement of $10,000 in minimum monthly revenue

Min. Credit Score: Prospective borrowers should have a credit score above 500 to qualify for a working capital loan with credibly.

Loan Amount: Credibly gives borrowers access to loans between $5,000 and $400,000.

Short Term – LoanBuilder

Pros:

  • No-commitment loan cost estimate
  • Low maximum APR of 19.4%
  • No origination fee
  • No closing costs
  • Access to up to $500,000

Cons:

  • $20 returned payment fee
  • Short repayment terms between 13 and 52
  • Weekly repayments
  • UCC-1 filing required

Min. Credit Score: To qualify with LoanBuilder, you should have a minimum credit score of 550.

Loan Amount: LoanBuilder gives borrowers access to funding between $5,000 and $500,000.

Long Term & Big Purchases – SmartBiz

Pros:

  • Low maximum APR of 11.04%
  • Faster to fund than standard SBA loans
  • Long repayment terms of up to 10 years
  • Easier application process than for traditional SBA loans

Cons:

  • Difficult to qualify for
  • Takes several weeks to fund
  • More complex application process than other online lenders
  • Higher fees than traditional online lenders

Min. Credit Score: To qualify for a SmartBiz SBA loan, you should have a credit score above 675.

Loan Amount: SmartBiz offers loan amounts ranging between $30,000 and $350,000.

SBA 7(A) Loan

Loan Amount: $30,000 – $350,000
APR Range: 9.7% – 11.04%
Time To Fund: As soon as 7 days
Loan Term: 10 Years
How To Qualify: 600+ Personal Credit Score
$50,000+ Annual RevenueAt least 2 years in business
Great Option For: Borrowers With Good Credit
SBA Loans
Click “Check Rates” to apply to SmartBiz

» MORE: SmartBiz SBA Loans

Conclusion

A working capital loan can help business owners fund their day-to-day expenses without reaching too deep into their own savings or funds. If you’re looking to finance regular expenses like payroll or rent, it might be worth considering a working capital loan. Before making a decision on any loan, however, make sure to evaluate a variety of lenders and offers in order to find the lowest rate.

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