
Sign up & start saving!
Get our weekly newsletter for the latest in money news, credit card offers + more ways to save
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Updated . What changed?
Working capital loans can help pick up some of the daily costs you might not otherwise be able to afford during an off season, or when you just need a little boost to help your business grow. They’re typically friendlier to small and new businesses than the average bank loan, but they’re not without risk.
National Hybridge SBA Loan | Fast financing — 24-hour turnaround for initial funding and 60-day turnaround for SBA funding | $10,000–$500,000 | 6+ months in business, $100,000+ annual revenue | |
OnDeck | Financing a business with a large, consistent cash flow | $5,000–$250,000 | 600+ personal credit score, 1 year in business, $100,000+ annual revenue | |
Lendio | Cutting down on time spent making comparisons | $500–$5,000,000 | Operate business in US or Canada, have a business bank account, 560+ personal credit score | |
SmartBiz | Getting help filling out complicated SBA loan applications | $30,000–$5,000,000 | 650+ personal credit score, US citizen or permanent resident, 2+ years in business, $50,000+ annual revenue, no outstanding tax liens, no bankruptcies or foreclosures in past 3 years | |
Fundbox | Small unpaid invoices | $1,000–$100,000 | You must have an established business. | |
BlueVine | Large unpaid invoices | $5,000–$5,000,000 | 530+ personal credit score, 3+ months in business, $100,000+ annual revenue | |
First Down Funding | Financing a startup | $5,000–$300,000 | At least 1 year in business, an annual revenue of $100,000+, and a minimum credit score of 400 | |
A working capital loan is a business loan used to cover the day-to-day expenses of a business, rather than long-term purchases like equipment or real estate. They typically come in smaller amounts than traditional business loans, have shorter terms and are easier for a small business to qualify for.
Working capital loans can include:
Working capital is the amount of money a business has access to for short-term business needs. To calculate your business’s working capital, add up all of its liquid assets — such as cash and accounts receivables — and subtract its liabilities.
Working capital = Money your business has access to or is owed – its debts
A business with a positive working capital can generally afford to take on more debts, has a financial cushion in case of emergencies and often earns more than it spends — though it might not always have access to that cash. Businesses with negative working capital might want to reconsider taking out a new loan and turn to alternatives like crowdfunding or find investors.
A working capital loan can be used for any legal business purpose, but is typically in an amount best suited to covering basic operations. This can include:
Knowing the state of your working capital is the same as running any other part of your business: Monitor your metrics and keep track of fluctuations. You can do this by:
Here are a few reasons why you might want to take out a working capital loan:
Consider these potential drawbacks before taking out a working capital loan:
The best method of financing your business during the coronavirus outbreak will depend on your specific operation and financial situation. A working capital loan may help you cover losses, but — as always — you should only take out a loan you know you’ll be able to pay back.
Because of the disruption to so many types of businesses, invoice financing and factoring and merchant cash advances may not be an effective way to get funding. If you’re sure you can pay it back, a term loan may be a better option. It can help you cover operational costs, including paying employees.
You’ll also find more options than just working capital loans to keep your business running smoothly during the pandemic. Other alternatives include:
Measure your working capital needs by dividing your current assets by your current liabilities. This is referred to as the working capital ratio, and it measures your business’s ability to use its assets to pay for its liabilities.
Generally, you’ll be looking for a working capital ratio between 1.0 and 2.0 — anything lower or higher than this might indicate your business isn’t running as efficiently as it could.
A number lower than 1.0 means you have more liabilities than assets. For example, if you only have $50,000 in assets but are paying out $55,000 toward your debts, you have a working capital ratio of 0.91. Working in the red like this is risky and often results in a business going under.
On the other hand, a working capital ratio above 2.0 means you’re not investing back into your business enough. If you have the same $50,000 in assets but are only paying $25,000 toward your liabilities, you have a working capital ratio of 2.50 and may want to consider ways to expand your operations.
Find a working capital solution that keeps your liabilities to a minimum while increasing your ability to utilize your liquid assets.
Working capital liquidity is the speed you can sell or buy an asset or piece of security. While you may have assets that keep your business in the black, the reality is not all of this is liquid. Your inventory and accounts receivable are much less liquid than cash — you’ll need to sell inventory or collect on unpaid invoices to use the money as working capital.
Here are a few pointers to make your working capital loan work for you:
Cash flow is the money moving in and out of your business each month. It’s one of the most important parts of your business’s working capital when deciding if your business can benefit from a working capital loan.
Like with working capital, positive cash flow means your business is making more money than it spends each month. Negative cash flow means it spends more than it makes.
Having a positive cash flow is essential to covering expenses and debt obligations. If you consistently have a negative cash flow, your business might not be able to afford to make loan repayments. It could also have a difficult time qualifying for a working capital loan or other types of credit.
Working capital loans can be a big help to small businesses that have money coming in but could use some extra cash to maintain daily operations. It can be especially helpful for seasonal businesses that need a little help making it through slower months.
But if you’re looking to finance a big project or add a location, you might want to check out other business loans like equipment loans, commercial loans for real estate or other business term loans.
Not sure if a working capital loan is right for you? Use our business loans guide as a starting point when you need to determine what type of loan will suit you best.
Reduce your debt by around 30% after fees — but only if you can stick with the program. Here’s how.
Finder spoke with 10 women investors who shed some light on helpful tips and tricks to start your investment journey.
Here’s where to get financial help for yourself and your business if you’ve been affected by the storm in February 2021.
Is Mercari the best secondhand app to buy or sell your goods? See Mercari pros and cons, reviews and complaints and general FAQs to decide.
The White House announced new changes to PPP loans, helping the smallest businesses and opening access to people with student loan defaults or nonfraudulent felony convictions.
President Biden said he supports offering $10,000 in forgiveness for federal loans, plus a few other options. Here’s what to expect.
Small lenders continue to offer a lifeline to small businesses for First and Second Draw loans.
Use your death benefits to help pay for medical expenses while you’re still alive.
The rush of turning $19,500 into $1 million can be enticing, but it’s not always the best idea.
Solid option for those with Empower memberships. Not the right choice for everyone else.