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Where to Find Working Capital Loans Options for Small Business Needs

By Roy Rasmussen Reviewed By Mike Lucas
By Roy Rasmussen
By Roy Rasmussen Reviewed By Mike Lucas

Working capital loans options for small business financing can help you cover bills and expand your operations. Here’s our guide to how they work. 

We’ll start by reviewing what working capital loans are and what types there are. Then we’ll consider why you might need one and what their pros and cons are. Finally, we’ll cover how to qualify for one, what you should look for in lenders and how to go about applying.

What Are Business Working Capital Loans?

Working capital loans are forms of financing designed to help businesses cover their normal operational expenses such as payroll, rent and inventory. 

Such expenses normally are financed by working capital, which is the difference between a company’s assets and liabilities. Items such as cash on hand, accounts receivable and inventory count toward assets, while items such as accounts payable and debt are classified as liabilities. 

When a company has a large amount of working capital to work with, it’s easier to cover operational expenses. When cash flow is low and available finances are tight, a working capital loan can help fill the gap.

Working capital loans stand in contrast to loans that are designed to fund long-term business needs, such as business term loans with long repayment schedules and certain Small Business Administration (SBA) loans. Loans designed for working capital purposes are designed to help businesses meet their short-term expense obligations so they can continue operating and growing.

Two horses pull a wagon with dollar coins for wheels. The cover of the wagon reads “Working Capital.”

What Kinds of Working Capital Loans Are There?

Working capital financing can come in a variety of forms. Some of the most common include:

  • Short-term business loans: Lump sums with payoff periods typically in the range of 3 to 18 months
  • Lines of credit: Accounts with a set limit that can be drawn against, with funds that have been repaid typically becoming available to spend again
  • Accounts receivable financing: Funding extended as an advance against unpaid customer invoices, which serve as collateral
  • Merchant cash advances: Funding extended as an advance against deductions from future sales, which serve as collateral

These types of financing generally have lower limits and higher rates than loans with longer terms. However, as a result, they can be easier to qualify for and funds can be made available more quickly.

Why Would You Need Business Capital Loans?

There are several reasons why operating capital loans might be beneficial to your business:

  • You need extra cash to cover an emergency cash-flow crunch resulting from unexpected expenses or slow sales
  • You’re in an industry where your cash flow is subject to seasonal fluctuations, such as retail or hospitality
  • You require funding to take advantage of a business expansion opportunity, such as upgrading a key piece of equipment
  • You’re a manufacturer who supplies businesses with seasonal sales peaks
  • You just hired a new employee with a high salary and your payroll costs have increased
  • You require financing to pay for maintenance or repairs

These are just a number of scenarios where your company might require a quick cash-flow injection through a working capital loan. In general, working capital loans can come in handy any time you find yourself running low on short-term cash or you’re anticipating an increased expense that would strain your cash flow.

What Are the Pros and Cons of Working Capital Loans?

Working capital loans offer a number of advantages to companies:

  • They serve to cover emergency and short-term cash flow needs
  • They can be easier to qualify for than long-term financing
  • Funding for working capital loans can be made available quickly
  • Working capital loans can be repaid faster than long-term loans

On the other hand, these advantages can come with some trade-offs:

  • Working capital loans generally have lower limits than long-term financing options, making them less suitable for purposes such as commercial real estate purchases
  • Loans for working capital tend to have higher interest rates than long-term loans
  • Some types of working capital financing such as accounts receivable financing and merchant cash advances may require you to make frequent payments, which can diminish your future cash flow while you’re repaying your debt
  • The application process may require a credit check, which can affect your credit score
  • Missed payments or defaults may lower your credit score
  • You may need to provide collateral in some circumstances

Whether these drawbacks outweigh the benefits of working capital loans will depend largely on your needs, what type of financing method you’re considering and your other financing options. 

If you’re facing a cash-flow emergency and you need financing now, a working capital loan may be a necessity. But in some cases, you may be able to obtain more funding or save money on interest by using an alternative financing method. 

If you run a seasonal business, you may find that working capital loans can help you manage cash flow during slow seasons while other forms of financing can sustain your long-term growth.

How Do You Qualify for Working Capital Loan Requirements?

Qualifying for a working capital loan can be easier than qualifying for long-term financing. Lenders consider factors such as:

  • Your annual, monthly or daily revenue
  • How long your company has been in business
  • Your profit margins
  • Your credit score
  • What you intend to use the funds for

While lenders may consider credit score when evaluating working capital loan applications, this often bears less weight than other considerations such as your revenue. 

Generally speaking, banks considering working capital loan applications will require an annual revenue of $500,000, a minimum of 2 years in business and a personal FICO credit score above 675. Alternative lenders offering easy business capital loans may be willing to extend working capital financing for annual revenue of $75,000, a minimum of 1 year in business and a credit score above 540.

Banks considering working capital loans may require: annual revenue of $500,000, at least 2 years in business and a personal FICO score above 675.

What Should You Look for in Working Capital Lenders?

When reviewing working capital lenders and loan opportunities, there are a number of criteria you can use to evaluate your options, including:

  • How much cash do you need?
  • How soon do you need it?
  • What do online reviews say about the lender?
  • Which types of working capital loans do they offer?
  • What are their loan limits?
  • How long are their repayment terms?
  • What type of interest rates do they charge?
  • Do they charge any other fees?
  • Do you meet their qualifying criteria?
  • How fast is their approval process?

Fast Capital 360 can help expedite your lender review process by automatically matching you with potential lenders who meet your funding needs and prequalifying criteria.

How Do You Apply for Small Business Capital Loans?

To apply for a small business working capital loan, you should be prepared to provide information such as:

  • A description of what your business does
  • Your revenue
  • Bank statements and tax returns documenting your revenue
  • How long you’ve been in business
  • Personal information about company owners, including name, date of birth and Social Security number

Your lender may run a credit check. In some cases, you may be asked to provide collateral or a personal guarantee.

Different lenders will have different application requirements. Follow the specific instructions from your selected lender.

Explore Your Working Capital Loan Options for Small Business Needs

Working capital loans help businesses cover short-term expenses needed to maintain operations, such as payroll costs. They come in a variety of options, including short-term loans, lines of credit, accounts receivable financing and merchant cash advances.

Working capital financing can be useful for purposes such as managing seasonal cash-flow cycles, covering emergency expenses or capitalizing on expansion opportunities. Disadvantages can include higher rates, more frequent payments and lower limits than some other types of financing. Factor in your financing needs, rates and repayment terms when considering providers.

Fast Capital 360 helps match companies with providers of fast working capital loans and other types of financing to cover your working capital needs. To see what types of financing you may qualify for, take a few minutes to fill out our free, no-obligation prequalifying application and see your loan options.

Roy Rasmussen Contributing Writer for Fast Capital 360
Roy is a respected, published author on topics including business coaching, small business management and business automation as well as an expert business plan writer and strategist.
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