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Working Capital Loans Guide

By Elise Moores Managing Editor at Fast Capital 360 Reviewed By Mike Lucas

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What Is a Working Capital Loan?

The definition of a working capital loan is financing obtained and used to support a company’s operations, daily or project-based. 

In most cases, a working capital loan is defined by shorter terms. In other words, this type of financing is not used to acquire long-term fixed assets, including real estate, such as land or buildings.

That said, you can use a business capital loan for a number of reasons. For example, you can pay your employees and rent during your annual lulls, or you can purchase inventory without depleting cash reserves. Funding a company’s everyday needs is what a working capital loan is all about.


How Does a Working Capital Loan Work?

Typically, working capital loans for small businesses are unsecured, meaning they’re obtained without collateral. This allows lenders to fund fast — one of the biggest selling points of working capital financing products.

Because business working capital loans are used for short-term goals and needs, they’re often repaid in less than 18 months.


What’s the Difference Between Term and Working Capital Loans?

The most significant difference between term and working capital loans is how they’re obtained. Traditional term loans typically require good credit, a proven business history, high annual revenues and often collateral. On the other hand, small business working capital loans have lower funding amounts, process quickly and are easier to qualify for. 

Another significant difference is the length of their respective terms. Business term loans can extend anywhere from 1-25 years, while small business working capital loans are usually repaid in 18 months or less.

Their repayment structures differ, too. Where traditional term loans are often paid back in equal monthly installments, working capital loans often require daily or weekly payments.


What Are the Different Types of Working Capital Loans?

There are many different types of working capital loans that can help cover day-to-day operating expenses, such as short-term working capital loans, government-guaranteed loans and lines of credit. 

With the increased need for capital many business owners face, it’s no surprise that 58% of firms were more likely to seek financing for operating expenses than other needs, according to the Federal Reserve Banks’ State of Small Business Credit Survey. In fact, the survey noted that paying operating expenses was the No. 1 financial challenge small business owners faced. 

If you’re looking for funds to improve and maintain your operating capital, you must decide which option best aligns with your particular needs. To do so, it’s important to understand that the foundation of each working capital loan stems from a different loan type.

Short-Term Loans

Short-term working capital loans give you the ability to run your business without disruption. 

Short-term business loans provide working capital for companies navigating obstacles, like sudden cash-flow emergencies. They also can enable you to embrace exciting revenue opportunities. 

This type of working capital loan usually ranges from 3 to 18 months and is repaid in daily or weekly increments.

SBA Loans

SBA loans are partially guaranteed by the Small Business Administration (SBA) and provide access to working capital for business owners who may not meet conventional bank loan requirements. 

SBA-backed loans decrease the risk for lenders, helping them offer some of the best working capital loan rates they can to more borrowers.

Many businesses can qualify. SBA working capital loans are a preferred option for those who can obtain them.

Lines of Credit

A business line of credit (LOC) is a perfect solution for revolving working capital needs.  

A line of credit allows you to withdraw what you need up to your credit limit. You’ll pay interest on the amount you borrow. 

In short, it’s the perfect type of working capital loan for you if your funding needs are fluid.

Merchant Cash Advances

Merchant cash advances (MCAs) can provide working capital to businesses that want funding fast and don’t want to jump over hurdles to get it.

Merchant cash advances are upfront sums of capital advanced to borrowers against their business’s future sales. These are short-term financing programs and are repaid through smaller daily or weekly payments until the advance balance, along with any fees, are paid in full.

Out of all types of working capital financing products, merchant cash advances offer the most accessible qualification requirements. Actually, businesses that applied for merchant cash advances saw an 84% approval rate, according to the Federal Reserve Banks’ survey, second only to equipment loans, which had an approval rate of 87%. 

Once you’re approved for a merchant cash advance, funds can be placed in your account within 24 hours.

If you’re looking for fast working capital loans for bad credit, MCAs are one of the best options.

Accounts Receivable Financing

If your business has many unpaid invoices or typically experiences a long payment cycle, accounts receivable financing offers a solution.

Accounts receivable financing, also known as invoice financing, is an alternative to fast working capital loans. With this type of funding, you get instant access to cash that’s tied up in your accounts receivables.

By offering the value of your invoice as collateral, you could qualify for an advance of up to 80% of the total invoice. This means you can continue to manage the costs of your business.


How Can You Get a Working Capital Loan or Financing for Your Small Business?

Getting a working capital loan is easier and faster than obtaining a conventional term loan.

While each lender has its own working capital loan requirements, the qualifications are dependent on the loan or financing type. Borrowers who meet the following minimum criteria typically qualify.

  • Time in business: 6 months
  • Annual revenue: $200k
  • Credit score: 550

How Can You Apply for a Working Capital Loan?

Working capital loans are serviced by various entities, including banks, credit unions and online lenders. If you are an established business with solid credit and a healthy financial profile, a bank or credit union may offer you the most favorable terms. 

Online alternative lenders typically charge higher interest rates. They offer shorter terms, but they work with a broader spectrum of business owners and can approve and fund applicants fast, sometimes in as little as 24 hours. 

The application process will differ from lender to lender, but at a minimum, be prepared to supply proof of identification and business ownership and up to 6 months of past bank statements.

  • Fast Capital 360 brings together some of the best working capital lenders through one straightforward application.

    Applying is fast, easy – and most importantly – won’t impact your credit.

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  • Document icon
    Accounts Receivable Financing
    Advance amount: Up to 80% of receivable value
    Repayment terms: Until the customer pays the invoice
    Factor rate: Starting at 1.02
    Funding available: Same day
    Advance amount: Up to 80% of receivable value
    Repayment terms: Until the customer pays the invoice
    Factor rate: Starting at 1.02
    Funding available: Same day
  • Business Lines of Credit
    Financing amount: Up to $250,000
    Estimated repayment term: 6 months - 2 years
    Interest rate: Starting at 8%
    Speed of funding: 1 day
    Financing amount: Up to $250,000
    Estimated repayment term: 6 months - 2 years
    Interest rate: Starting at 8%
    Speed of funding: 1 day
  • Calendar icon
    Business Term Loans
    Financing amount: Up to $250,000
    Repayment terms: 1 - 5 years
    Interest rate: Starting at 7%
    Speed of funding: 1 day
    Financing amount: Up to $250,000
    Repayment terms: 1 - 5 years
    Interest rate: Starting at 7%
    Speed of funding: 1 day
  • Bank icon
    Commercial Loans
    Financing amount: Up to $5 million
    Loan term: 3 months - 25 years
    Interest rate: Starting at 7%
    Speed of funding: Same day
    Financing amount: Up to $5 million
    Loan term: 3 months - 25 years
    Interest rate: Starting at 7%
    Speed of funding: Same day
  • Wrench icon
    Equipment Financing
    Financing amount: Up to 100% of equipment value
    Repayment terms: 1 year - 5 years
    Interest rate: Starting at 8%
    Speed of funding: 2 days
    Financing amount: Up to 100% of equipment value
    Repayment terms: 1 year - 5 years
    Interest rate: Starting at 8%
    Speed of funding: 2 days
  • Money icon
    Merchant Cash Advance
    Advance amount: Up to $500,000
    Estimated repayment term: 3 - 24 months
    Factor rate: Starting at 1.10
    Speed of funding: Same day
    Advance amount: Up to $500,000
    Estimated repayment term: 3 - 24 months
    Factor rate: Starting at 1.10
    Speed of funding: Same day
  • Bag icon
    SBA Loans
    Financing amount: Up to $5 million
    Repayment terms: 5 - 25 years
    Interest rate: Starting at 6.25%
    Speed of funding: 7 days
    Financing amount: Up to $5 million
    Repayment terms: 5 - 25 years
    Interest rate: Starting at 6.25%
    Speed of funding: 7 days
  • Short-Term Business Loans
    Financing amount: Up to $500,000
    Repayment terms: 3 - 18 months
    Interest rate: Starting at 10%
    Speed of funding: Same day
    Financing amount: Up to $500,000
    Repayment terms: 3 - 18 months
    Interest rate: Starting at 10%
    Speed of funding: Same day

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