Up to $500,000
Estimated Repayment Terms
3 months - 25 years
Starting @ 7%
Speed of Funding
As fast as 1 day
Working Capital Loans: Best Options for Small Businesses
Positive working capital is essential to your business’s financial success. If you’re operating with insufficient capital, it can be difficult to move forward when you experience gaps in your cash flow.
Your business can use this type of loan for a number of reasons. It can be used to pay your employees and rent during your annual lulls, or it can be used to purchase a vital piece of equipment without depleting the working capital you currently have.
How Does a Working Capital Loan Work?
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.
Working capital loans are often used as bridge loans and aren’t used to make investments or purchases that focus on the long-term benefit of the business. Instead, these loans are meant to cover regular operational costs like rent, payroll and debt payments.
Typically, small business capital loans are unsecured, meaning they’re obtained without collateral. This allows them to fund more quickly, 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.
The Difference Between Term and Working Capital Loans
The greatest distinction between these two products is how they’re obtained. Traditional term loans require good credit, a proven business history, high annual revenues and often collateral. Small business operating loans are smaller, process quickly and have less stringent requirements.
Another significant difference is the length of their respective terms. The length of a business term loan 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 paid back in equal monthly installments, working capital loans often require daily or weekly payments.
Types of Working Capital Loans
If you’re looking for funds to improve and maintain your operating capital, you need to decide which option best aligns with your particular needs. To do so, it’s important to understand that the foundation of each unsecured working capital loan stems from a different loan type.
Short-term working capital loans give you the ability to run your business without missing a beat. These loans offer business owners the chance to borrow only what is needed over a specific period of time, eliminating the need to manage debt long after your use of the funds has ended.
Short term business loans provide working capital for companies navigating obstacles like sudden cash flow emergencies and can even 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.
While there are many owners who need capital to fund a business need, they may not meet the requirements of a traditional bank loan. SBA loans provide a comparable alternative.
These loans are partially guaranteed by the Small Business Administration in an effort to decrease the risk for lenders who provide funding to small businesses. These federal guarantees help lenders offer more favorable terms to borrowers.
Regardless of their size, many businesses can qualify. SBA programs can even be used as a working capital loan for new businesses.
Line of Credit
Many times a business’s working capital needs are evolving. A business line of credit (LOC) is a perfect solution in these instances.
A LOC functions similarly to a credit card, allowing you to withdrawal only what you need up to the credit limit. You’ll pay interest only on the amount you borrow. In short, it’s the perfect financial solution when your capital needs are fluid.
Merchant Cash Advances
When a business begins their search for working capital, they typically want funding fast and don’t want to jump over hurdles to get it. Merchant cash advances check off both of these boxes. Merchant cash advances (MCAs) are upfront sums of capital loaned against a business’s future sales. These are short-term programs and are repaid through smaller daily or weekly payments until the balance of the advance, along with any fees, are paid in full.
Out of all of the working capital financing products available, this type of funding offers the most flexible qualifications. Once you’re approved, funds can be placed in your account as soon as the same day. For this reason, these programs are a go-to resource for business owners requiring immediate access to cash to meet a short-term capital need.
Accounts Receivable Financing
If your business is used to waiting on unpaid invoices, or typically experiences a long payment cycle, invoice financing offers a solution.
Invoice financing programs are working capital loans that give you instant access to cash tied up in accounts receivables.
By offering the full value of your future invoice payments as collateral, lenders provide you with up to 80 percent of the total invoice. This means you can continue to manage the costs of your business.
How to Get Working Capital for Your Small Business
Getting working capital is easier and faster than obtaining a traditional term loan.
While each lender has their own working capital loan requirements, the qualifications are dependent on the loan type.
Do You Qualify?
Based on previously approved borrowers, you’re likely to qualify if:
- You’ve been in business 6 months or more.
- Your annual revenue is $75K or more.
- You have a credit score of 500 or better.
Getting a Working Capital Loan with Bad Credit
It’s possible to obtain a working capital loan if you have bad credit. However, this does mean you’ll pay more in fees and interest than other business owners with better credit scores.
How to Apply for Working Capital Financing
Fast Capital 360 simplifies the application process with state-of-the-art technology that allows you to apply in minutes and be approved in hours.
Step 1: Tell us about your business.
Fill out a few basic questions about your business so that we can connect you with the best lenders.
Step 2: Tell us about you.
We need to learn about you so we can determine your eligibility without impacting your credit score.
Step 3: Connect your bank account.
Your revenue data enables us to match you to funding opportunities at the speed of modern business.
Step 4: Get funded.
Funds can be deposited into your bank account as soon as the same day.
How Working Capital Can Be Used
Finding the best working capital loans can be essential to companies that don’t have stable or predictable monthly revenue. Experiencing gaps in your cash flow or operating with insufficient capital can make it difficult to move forward.
Let’s take a look at some of the ways your business can use a working capital loan:
In business, as in life, moments of crisis occur when you least expect them. In these situations, securing working capital for your small business can mean the difference between scraping by or finding some peace of mind.
Picture this—a vital piece of equipment breaks down and you’re forced to buy a brand new replacement. You have two options: you can pull funds from your business’s cash flow or savings, or you can apply for a small business capital loan. By using a working capital loan to make large purchases more manageable, you’ll avoid dipping into the money you have set aside for other expenses.
If your business comes across an opportunity for growth, it could require more capital than you have available. With a working capital loan, you can cover daily expenses and take advantage of moments like these without skipping a beat.
For instance, you may have a large purchase order from a new client that could lead to significant growth for your company. The challenge you have, however, is that you don’t have enough inventory to fulfill the order. With a working capital loan for small business, you can fund the upfront costs of purchasing the inventory you need and pay it off quickly, once you’ve received payment from your client.
Seasonal Peaks and Lows
Seasonal businesses can really benefit from working capital for small business. Despite the fact that busy seasons bring in a lot of revenue (like the holidays for retail stores), businesses need a significant amount of capital that will allow them to prepare and maintain.
Conversely, some companies endure slow seasons (like a landscaping business during winter) and need help covering expenses like payroll. Whether you’re preparing for a yearly rush or dealing with a slow season, small business capital funding can provide the funds to get you through.