Working capital loans are designed to help small businesses access cash to cover operational expenses like making payroll, purchasing inventory or hiring seasonal workers. Common loan types include lines of credit (LOCs), invoice factoring, merchant cash advances and SBA loans.
A working capital loan can also help you access quick funds to take advantage of a new business opportunity. An example might be a plumbing company borrowing $50,000 to buy new equipment and hire employees to take on a commercial job.
The best working capital loan depends on your priorities. Banks and credit unions tend to offer the lowest rates and fees. But online lenders have more flexible requirements and a faster turnaround. Here’s a closer look at the options.
Best 5 working capital business loans
Best loan marketplace: Lendio
Lendio is an online business loan marketplace that helps you find fast working capital loans for your needs. It partners with over 75 lenders and offers quick turnaround working capital loans, including short-term loans, lines of credit, merchant cash advances, invoice factoring and more.
You can also apply for an SBA 7(a) or Express loan, which can be used for working capital expenses. Its online platform makes it easier to complete the application and keep track of documents. Plus, it has personal funding managers to help if you're stuck.
Best line of credit: BlueVine
Bluevine business lines of credit
BlueVine working capital lines of credit go up $250,000 with the option for same-day funding when you need to make a withdrawal. It's ideal for ongoing needs, since you only pay interest on what you use. Each withdrawal turns into a term loan with weekly repayments.
BlueVine's LOCs have a relatively low starting APR compared to other online lenders, and the company accepts fair credit scores as low as 625. But you need at least two years in business and $40,000 in monthly revenue to qualify.
Best merchant cash advance: Fora Financial
Fora Financial business loans
Fora Financial offers some of the lowest-cost merchant cash advances out there, with factor rates starting as low as 1.1. It also offers an early payoff discount and doesn't charge a monthly maintenance fee like some other MCA lenders.
Businesses that have been around for as little as six months can qualify as long as they have $15,000 in monthly gross sales and no open bankruptcies. But it doesn't display rates online, and it can take as long as 72 hours to receive your funds.
|Loan amount||$5,000 to $1,500,000|
|Starting Factor Rate||1.1|
|Min. Credit Score||500|
Best invoice factoring: AltLINE
AltLine invoice factoring
If you want to access the value of your unpaid invoices now, AltLINE is an invoice factoring company that offers up to 90% of the value of your outstanding invoices. It serves various B2B industries, including small businesses, retail, manufacturing, trucking and more.
You'll pay a factoring rate typically between 1% and 5% and a filing fee of $350 to $500. Once AltLINE collects on the invoices, you receive the rest of the value minus AltLINE's factoring rate. The company is highly rated by past customers on Trustpilot for its speed and service.
|Loan Amount||Up to 90% of the value of outstanding invoices|
|Fee for Terms||1% to 5%|
Best for SBA loans: The Huntington National Bank
Huntington National Bank SBA loans
SBA business loans are long-term business loans partially backed by the government. While popular due to their more competitive rates, they are harder to qualify for than other types of loans. To qualify, you'll need a down payment and meet minimum revenue requirements.
The Huntington National Bank has some of the highest approvals for SBA loans in the nation. It offers the 7(a), Express and 504 loans with down payments as low as 10% and loan amounts of up to $10,000,000. And it's a preferred SBA lender, which can help speed up the application process.
|Loan amount||$5,000 – $10,000,000|
Methodology: How we chose these lenders
Our lending experts analyze dozens of business loan providers to narrow down the best options for business owners. We weigh lenders against 12 key metrics:
- Application process
- Credit score minimums
- Customer service reviews
- Eligibility requirements
- Extra features
- Funding turnaround times
- Lender reputation
- Minimum and maximum loan amounts
- Products offered
- Willingness to work with risky industries
We also search for lenders that cater to a range of needs, including those that work with bad credit and newer business owners.
How to compare working capital business loans
Here are the top things to keep in mind when comparing working capital business loans:
- Prequalification. Many lenders allow you to prequalify for a loan to see your potential loan amount, rates and repayments before formally applying with a hard credit check. This lets you compare loans without impacting your credit score.
- APRs. Short-term working capital loans tend to have higher APRs than long-term loans. Compare multiple quotes from multiple lenders to be sure you’re getting the best deal for the type of loan you’re after.
- Repayment terms. Working capital loans have widely varying repayment terms — anywhere from daily up to 25 years. Understanding how often you’ll need to make payments helps ensure you won’t stretch your budget.
- Origination and other fees. Depending on the lender and your credit, you may be charged an origination fee from 0.05% to 10%. Be sure to ask about other fees too, like late fees, monthly administrative fees and prepayment penalties.
- Funding times. While working capital loans from online lenders generally have fast funding after approval, SBA loans can take one to two months to fund. Factor this into your choice of loan.
- Customer support options. Ask about the lender’s support options, which could be important to you when choosing a loan as well as later, should you want to borrow again or need help making repayments.
- Customer reviews. Customer reviews on sites like Trustpilot and the Better Business Bureau (BBB) website are a good place to read about past customers’ experiences with a particular lender.
What is a working capital business loan and how does it work?
Working capital business loans can either be lump sum or funds that you access on an as-needed basis, like a line of credit. These loans typically have short repayment periods ranging from 90 days to 36 months. Some SBA loans, however, can have repayment terms of up to 25 years.
Repayments on working capital business loans can be monthly, bi-monthly, weekly or even daily. This means you’ll likely be making higher payments with most working capital loans than with a long-term loan. This makes working capital loans best for operational expenses and to cover cash flow gaps.
If you need to pay for long-term investments like buying commercial real estate or purchasing large equipment, consider a long-term business loan instead.
Pros and cons of working capital business loans
Consider these pros and cons when choosing a working capital business loan.
- Multiple options available for different financing needs
- Helps smooth over cash flow during slow periods
- Funds to take advantage of new business opportunities
- Loans may have high APRs
- Frequent repayments may be required
- Balloon payment may be required at the end of the term
Types of working capital business loans
Here are the main types of working capital loans:
|Business line of credit||$1,000 to $500,000||1 to 2 years||Businesses needing a flexible source of funding|
|Merchant cash advance||$5,000 to $2,000,000||Up to 2 years||Newer businesses and those with a lower credit score|
|Invoice factoring and financing||Tied to receivables||Up to 1 year||B2B businesses and those with a lower credit score|
|SBA loan||$5,000 to $500,000||1 to 2 years||Businesses that need working capital with a longer repayment term|
How to qualify for a working capital business loan
Because there are different types of working capital loans, the eligibility criteria will vary widely by the type of loan you’re after. But to qualify, you’ll generally need to meet these criteria:
- A minimum of six months to two years in business
- A minimum credit score of 500 to 625
- At least $3,000 to $15,000 in monthly revenue
- No recent bankruptcies
Again, these are general guidelines only. Some options, like invoice factoring, don’t consider your credit score at all, with eligibility based on the value of your invoices instead.
How to apply for a working capital business loan
Applying for a working capital business loan typically follows these five steps:
- Determine the financing you need. Choosing the right working capital loan ensures that you’re getting the right type of loan to cover your specific funding needs — for example, to cover cash flow gaps or to hire seasonal workers.
- Check your eligibility. This step involves checking your personal and business credit scores, tallying your revenue, verifying your time in business and determining if you have collateral to pledge if you choose a secured loan.
- Gather your documentation. These documents typically include bank statements, tax returns and financial statements. You may also need to provide a business plan and personal guarantee if you’re a newer business owner.
- Complete the application. Fill out the full application and upload the required documents or link to your financial accounts. Be sure to review the application for accuracy before submitting to avoid delays in processing.
- Wait for approval and funding. Online lenders tend to have fast approval and funding times — which means if you’re approved, you could have a decision and funds in the same day depending on the loan type.
Alternatives to working capital loans
- Personal loan. Some lenders may let you use a personal loan for business expenses. Unlike working capital loans, personal loans don’t consider your business financials or time in business, which may be ideal for startups.
- Business credit card. For ongoing working capital needs, consider a business credit card. Not only can they help build your business credit score, but you can also earn perks like points or cash back on your business expenses.
- Home equity loans or HELOCs. If you own a home with at least 20% equity, a home equity loan or HELOC may be a cheaper borrowing option than a personal loan or credit card. But you must keep up on your payments or risk your home.
- Rollover for business startups (ROBS). A ROBS is a tax loophole that allows your business to access funds in your retirement account without penalty if it’s the right type of corporation. To qualify, you need at least $50,000 in your account. But you could face heavy fines with a ROBS — so consider hiring a professional if you choose this option.
- Grants. For free funding, consider a business grant. These are available through federal and state government agencies, as well as private corporations. But they’re highly competitive, and funding can take months.
- Investor financing. For those in promising industries, money from an angel investor can give you the cash you need to get your business idea off the ground. But you give up equity in your company in return.
- Crowdfunding. Crowdfunding is not only a popular marketing tool, it’s a smart way to judge interest in your product or service and gain potential customers while you drum up funding for your business.
Where can I find a working capital loan?
Working capital loans are available from online lenders, banks and credit unions. Online lenders tend to offer some of the best business loans with a wider selection of loans, streamlined applications and faster turnaround times than banks. You could be approved in minutes and have funding by the next day, depending on the loan type.
But you may get a more competitive rate with a bank or credit union, especially if you’re already a customer and receive relationship discounts on your loan. And some banks offer a range of merchant services and business accounts, which can help simplify your business finances and taxes.
How to prequalify for a business loan
Prequalification involves answering a series of questions about yourself and your business to determine your eligibility before you formally apply for a loan.
Here are the general steps:
- Visit the lender’s website and fill out the prequalification form.
- Provide information about yourself and your business.
- View your loan options and compare offers.
Once you’ve narrowed down your options based on your prequalification offers, you can formally apply for a loan with the lender of your choice.