What is a Working Capital Loan?

The Working capital loans have shorter repayment terms and lower loan amounts. They are designed to help with day-to-day business requirements.

Businesses with seasonal cycles can use working capital loans to ensure they have the resources necessary to continue operating throughout the year.

We’ll explain how these small-business loans work and where you can find your business’s best working capital loans.

Different types of working capital loans

Increase your working capital by generating more monthly revenue. It is only the case for some companies.

Many small businesses need to think outside of the box. Applying for working capital loans is one solution.

These are just a few of the many types of working capital loans available:

Short-Term Loans

A short-term business loan, the most popular working capital loan, is ideal for small businesses. You’ll receive a lump sum of money, which you pay back with interest over three to eight months.

Working Capital Lines of Credit

You can access a working capital credit to have immediate access to funds. Only interest is charged on any funds you use.

Business owners who need to establish an emergency fund can use a line of credit. The money is available if you have an urgent need for working capital.

Merchant Cash Advances

MCA companies will advance cash to you, and you’ll repay the company by agreeing to take a percentage of your credit card sales daily.

Invoice Financing

Late payments and unpaid invoices can cause small business work capital shortfall. Invoice financing is an option for owners of businesses whose working capital is tied down by outstanding invoices.

You can trade in unpaid invoices to obtain business capital. It frees up cash for daily business operations.

SBA Loans

The U.S. Small Business Administration backs an SBA loan, a low-interest business loan. The SBA7(a) loan is a great option for working capital. It allows you to borrow up to $5,000,000 for various business purposes.

The Best Options for Working Capital Loans

These are the top options for working capital loans.

LoanBuilder is a PayPal Service

Small business owners can access short-term working capital loans of $5,000 to $500,000. These short-term loans are available in one lump sum, which you will repay, plus interest.

LoanBuilder charges interest at a percentage of the loan amount. It ranges from 2.9% to 18.72%. If you take out a $100,000 loan at a rate of 5%, you will pay $5,000 interest.

OnDeck

OnDeck offers a variety of working capital loan options to small businesses.OnDeck offers working capital loans ranging from $5,000 to $250,000 and approval in as little as 24 hours.

Ideal for: Established companies with a little more income.

Credibly

Credibly is an alternative lender offering short-term working capital loans between $5,000 and $400,000. The repayment terms range from 6 to 18 months.

Credibly offers fast online applications and can fund your applications in as little as 24 hours. Most customers will be able to receive funds in three to five working days on average.

To qualify for these working capital loans, you will need $15,000 in monthly revenue, 500 credit scores, and six months of business experience.

Ideal for: Working capital loans to startups for business owners with low credit scores who require working capital.

American Express Merchant Financing

This working capital loan will provide you with a lump sum of cash, ranging from $5,000 to $2,000,000, that you will repay. The set fee is based on a percentage of your credit or debit card transactions.

Merchant financing fees can be as low as 1.75% and as high as 28%, depending on your loan amount. It makes it possible to make this working capital loan affordable.

How to find a working capital loan

After we’ve discussed the top options for working capital loans, it is possible to ask how you can get one of these business loans.

These steps will help you find a working capital loan to finance your business.

  1. Calculate your current working capital to determine the amount of financing you will need.
  2. Find the right type of loan for your business.
  3. Assess your company’s credit history, annual revenues, time in the industry, and other qualifications.
  4. Compare the top working capital lenders to find one that offers what you need and meets your requirements.
  5. All documents should be collected and submitted with your application.
  6. Close the process to receive your funds.
  7. Manage your working capital and use your funds.

Use Your Working Capital Loan

Payroll, rent, and invoices are all examples of running costs.

Your company will be better off if it has positive working capital. It is possible with working capital business loans.

Here are some examples of how you can use your working capital loan for your small business.

  • You can cover seasonal gaps.
  • Profit from growth opportunities.
  • Prepare for an emergency.
  • Short-term obligations are paid.
  • You can rest assured that operational costs will be cover.

How to manage your working capital

It will help you avoid taking on more debt in the future.

How can you manage working capital effectively? These are some working capital management tips.

  • Be careful with your expenses. Even the smallest and most insignificant costs can add up.
  • Increase your receivables collection. Many businesses have unpaid invoices causing them to hold on to working capital. Consider changing your collection process to ensure you get what you owe on time. To encourage payment, you should audit your invoicing system and think about how to send your invoices faster.
  • Make sure you pay your vendor. Companies with fewer days of outstanding accounts tend to have stronger relationships with their vendors. A better relationship with your vendor will allow you to negotiate better. Negotiating can help you secure better deals, terms for payment, and discounts. You can save money on expenses by keeping your suppliers happy. It will help you build your working capital.
  • Reinvest your money in your business. Redirecting cash into your company is good. It is the best way to increase your short-term growth.

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