In any small firm in the United States, one of the most crucial components of success is access to operating working capital. This money or working capital is the funding to get you through the entire daily overhead that you will run into while running your firm. When these funds are short, a working capital loan may be necessary to help your business. Cash flow is vital if you have employees for their paychecks. Your utilities need to be paid, inventory needs to be stocked for customers, and all of the other requirements that go into running a small business need to be covered. When your working capital ratio, current assets, and current liabilities aren’t sufficient, you need options to help your business. You need a reliable financial institution that you can turn to for help with cash flow like a working capital loan.

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What Is a Small Business Working Capital Loan?

At their most basic level, these loans are used to manage your daily operational business expenses. The working capital ratio is what keeps a firm afloat day in and day out. If you need to cover these day-to-day expenses, working capital loans provide a way to keep firms going with much lower amounts and shorter terms. These working capital loans aren’t used to purchase long-term investments or current assets, but rather work to fuel everyday cash on hand needs. Working capital loans can cover anything from rent and payroll to debt payments and utilities when current assets and current liabilities don’t add up.

What Qualifies as Working Capital?

Small businesses don’t always have the capital to cover daily operations and your company may not have time to wait around. Typically, seasonal or cyclical sales businesses reap the biggest benefits of working capital loans, but why? These corporations often have longer time periods where firm activity is minimal and need to find different ways to get the working capital ratio that will keep their firm running.

Retailers, manufacturing corporations, or other companies that don’t have stable revenue throughout the entire year still require an accessible working capital ratio to maintain operations and working capital needs. We offer ways for companies to pay wages or other required expenses through working capital loans. Working capital loans are then repaid during the busy season.

The most common types of working capital business loans are a term loan, business line of credit, or invoice financing. A term bank loan is fairly self-explanatory as a repayment schedule with either a fixed or floating interest rate exists. However,  a bank term loan is not easy to get if you haven’t heard. A business line of credit works a bit differently, allowing you some additional flexibility. Businesses are able to borrow an amount up to a certain limit and only pay interest on what they actually borrow. They’re able to draw and repay as needed, as long as the limit isn’t exceeded. Invoice financing allows lenders and online lenders the ability to provide temporary borrowing that is dependent on unpaid invoices.

While these aren’t the only types of working capital loans, they are the most popular. Whether you’re depending on flexibility or unpaid invoices for your capital loan working, we’re able to help you choose the options that will help.

Uses of Working Capital Loans:

  • Cash flow loans to stabilize bank account cash on hand
  • Operating expenses
  • Pay for current liabilities
  • Business expansion
  • Advertising/marketing
  • Improvement or remodel of existing facilities
  • Equipment
  • Inventory for customers
  • Supplies
  • Hire new employees
  • Emergency cash infusions due to extenuating circumstances
  • Emergency relief for accounts receivable issues

Best Working Capital Loans

SBA Loans

The Small Business Administration (SBA) provides business term loan programs and sets the underwriting qualifications and guidelines to provide guarantees to the issuers of these SBA loans in case of default. A small business loan can act as a working capital loan and are a great product for larger amounts of working capital that require long-term financing. The qualifications are stringent, have a working capital ratio to loan, a lengthy application process, and require significant paperwork and time in the industry but they are well worth it. Each offers an attractive interest rate and repayment guidelines. See if you qualify if you have time to deal with the process of securing financing for business loans. Keep in mind a long-term loan requires planning if it’s to help your firm solve the working capital you need because you can’t keep “going to the well” for more money with a long-term loan. Real estate may be needed as collateral for an SBA bank loan.

Benefits and Best Uses

SBA loans offer attractive business loan terms but they lack flexibility as they are not business lines of credit where you can draw money as you go for a short time frame. You receive a lump sum upfront and no ability to draw money with a fixed term and fixed payment. So when using this term loan for working capital make sure it fits your time horizon for additional capital in the future.

Product Overview

  • Rates: 5.5% up to prime plus 1% to 2.75%
  • Terms: 2 to 25 years
  • Fees: 1% to 4% origination fees
  • Payments: Monthly
  • Credit score requirements: Good to excellent; lengthy credit history
  • Time in business: 3 years

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Business Lines of Credit for Working Capital

Business lines of credit are the most flexible funding products. Business lines operate a lot like a charge card in that it is an open revolving line of credit that allows for draws at any time up to a specific credit limit. While they are not technically a “loan”, they do act as a working capital loan solution that can be drawn upon whenever your firm needs capital fast. Lenders of this product are both banks and online lenders. This product is very popular with retailers.

Product Overview

  • Rates: Starting at 4.5% and up depending on many factors
  • Terms: Revolving with quarterly renewals; 6 or 12 months
  • Fees: 1% to 3% origination fees
  • Payments: Monthly
  • Credit score requirements: Excellent; lengthy credit history
  • Time in business: 6 months or greater in business
  • Special features: You can draw money up to a credit limit at any time
  • Application process: 1 to 2 days

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Short-Term Small Business Loans

A short-term small business loan is a loan that has a fixed lump sum offered upfront, with a fixed payback amount over a fixed term of time typically 6 to 18 months. When you cannot qualify for more traditional small business loans, this short-term loan business financing option can be a great alternative loan. Rates are based on factor costs and not principal & interest and cost more than traditional business loans. The good news is these products require very little paperwork and credit score requirements are much more forgiving than traditional loans. This type of loan can be unsecured or require some sort of collateral.  So, for a working capital loan that works with you in the near term, short-term loans are a great option. Lenders of these types of loans are mostly online lenders. Salespersons have embraced this product.

Benefits and Best Uses

Unlike traditional loans, short-term financing has higher rates, shorter terms, and fees but can come to the rescue of the business that is in need of the money now and can’t get approved for more traditional financing products. The money can be used for a variety of different purposes but most commonly used for cash flow problems. Assets, current liabilities not required.

Product Overview

  • Rates: Starting at 1.10% up to 1.45%
  • Terms: Typically 6 to 18 months
  • Fees: 1% to 5% origination fees
  • Payments: Weekly, bi-weekly, monthly, and in some cases daily
  • Credit score requirements: Poor to excellent
  • Time in business: 6 months or greater in business
  • Application process: Approval can be as soon as the same day up to 24 hours

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Merchant Cash Advance

Merchant cash advances, also known as a Purchase of Future Sales Agreements, advance a fixed sum of money upfront to a business owner with a discounted purchase price (also known as specified amount) to payback that is a greater amount than the lump sum upfront provided to the merchant. The advance is repaid by taking a fixed percentage of future credit card sales batches until the payback amount is paid back in full, there is no term limit with advances as the fixed back percentage never changes. The time frame to pay back depends on the volumes of future sales. It’s estimated that this funding option is set up with expectations of being repaid in 6 to 18 months but again it may be longer or shorter depending on future card sales. This advance is another great rendition of a working capital loan that you can use to your benefit. Assets, current liabilities not required.

Product Overview

  • Rates: Starting at 1.09% up to 1.45%
  • Terms: No term limits; estimated payback periods are 6 to 18 months
  • Fees: Typically 1% to 5% origination fees
  • Payments: Fixed percentage splits from future credit card batches
  • Credit score requirements: Poor to excellent
  • Time in business: 6 months or greater in business

Business Cash Advance

Business cash advances, also known as a Purchase of Future Sales Agreements, advance a fixed sum of money upfront to a business owner with a discounted purchase price, also known as a specified amount, to pay back a greater amount than the lump sum upfront provided to the company owner. The advance is repaid by taking a fixed percentage of future overall sales, which is different from a merchant cash advance, to take a percentage of future credit card sales. While an advance may not technically be a working capital loan, it can act as one. Payments are collected by a fixed daily or weekly payment deducted from a business bank account which is based on the fixed percentage of future sales.

Every month, if the fixed payments take more than the set future percentage of sales then a refund back to the merchant can occur. This repayment continues until the payback amount is paid back in full, therefore, there is no term limit with advances as the fixed payback percentage ever changes. The time frame to pay back depends on the volumes of future overall sales. It’s estimated that this funding option is set up with expectations of being repaid in 6 to 18 months but again it may be longer or shorter depending on future credit card sales of the firm. This can act as a working capital loan that is both flexible and reliable for company owners. Assets are not required.

Benefits and Best Uses

When traditional financing is not an option, business cash advances can provide money in a pinch and allow a firm to continue to operate smoothly. The costs are higher than traditional financing, but if used properly, a business cash advance can be a real lifesaver. The use of the money can be used for a variety of different purposes but a majority of the reasons are money to help the company with day-to-day operations.

Product Overview

  • Rates: Starting at 1.09% up to 1.45%
  • Repayment terms: No term limits estimated; payback periods are 6 to 18 months
  • Fees: Typically 1% to 5% origination fees
  • Payments: Fixed ACH payments weekly or daily
  • Time in business: 6 months or greater in business
  • Credit score requirements: Poor to excellent

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Business Credit Cards

Like credit cards, business credit cards function as a revolving credit line in which a card is issued that can be used for both purchases and payments. Most companies use credit cards in conjunction with other loan products that may be used for cash flow each and every day. Lenders and online lenders of this product are mostly banks. This is not an unsecured loan and will require a personal guarantee. This product is commonly used by salespersons.

Benefits and Best Uses

The flexibility and access to money that credit cards offer are second to none. The ability to both purchase items and use them to pay for bills or invoices can also free up short-term funding problems and is very convenient. Assets are not required.

Product Overview

  • Rates: Starting at 0% up to 28.99%
  • Repayment terms: Revolving; no term limits
  • Fees: 1% to 3% origination fees
  • Payments: Low flexible monthly payments
  • Credit score requirements: Good to excellent; lengthy credit history

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Frequently Asked Questions

Are working capital loans for small businesses difficult to obtain?

The short answer is no. Fast forward to 2020, there are a lot of ways to get funding for your firm to use for working capital as there are many types of lenders and online lenders in the marketplace. Traditionally, banks do loan working capital needs, but they aren’t going to make it easy, and like collateral like real estate. The key is to evaluate all products you qualify for and find out which may be best for you. Compare, shop, and save.

What are the interest rates for working capital loans?

It is important to note that with a lot of different financing options comes a wide variance in either principal or interest rates. Business funding is also based on factor costs. Lenders typically charge long-term rates starting at prime or treasury index plus 2.00% and up. Typical interest rates as of 2020 are 6.50% up to 28.99% for medium-term loans and factor rates vary from 1.09% to 1.45% of the funding amount. That is a big range and is dependent on financing products and your qualifications.

What are the benefits of working capital loans?

Working capital loans are beneficial to small business owners because it stabilizes the company’s cash flow for any unexpected issues such as delay in accounts receivable, loss of revenue, or other emergency needs that may pop up.

Can I qualify for a working capital loan if I have a bad personal credit rating?

The short answer is yes. If you have a bad personal credit score there are options such as short-term loans, MCA, and BCA. Not to mention if you’re a firm that qualifies for invoice financing where there is no credit check.

What is business capital? How do you find the working capital of a business?

Business capital or working capital is the money that you need for day-to-day operations in order to keep the company running smoothly. Small businesses require this type of capital in order to pay employees, pay utilities, or whatever else it takes for day-to-day growth. A working capital loan offers a solution that many small business owners can take advantage of for daily operations and quick cash flow needs that may arise.

Can I get a working capital loan if I am a start-up business?

The Small Business Administration (SBA) offers an SBA microloan for start-up businesses but be forewarned as the process can be intense. Many documents are required and the process will take weeks to learn your fate. The Small Business Administration’s microloan program offers small businesses anywhere from $500 to $50,000 in capital. The average SBA microloan is $13,000.

SBA Microloan

  • Maximum loan amount: $50,000
  • Loan term: Up to 6 years in term
  • Rates: 6.99% to 13.99% (based on US Treasury index + interest)

What term lengths can I get with a working capital loan?

Usually, business owners who want money for working capital need frequent access to the money so short-term loans options like an LOC, business charge card, or loan fill that need best.

How much will working capital loans cost in fees?

Financing fees may vary based on the funding product and company you deal with. Typically fees are 1% to 5% of the funding amount.

How do you get a working capital loan?

AdvancePoint Capital offers easy loans for small businesses processes to those in search of the best working capital loans. Our customers love the fast, streamlined process and high approval rates that come from working with us. We make sure to consider all credit scores.

Apply for a working capital loan right now with AdvancePoint Capital. It’s as simple as a 1, 2, 3, 4 process. Start with this online form, then fill out the short application page, wait a few hours for your approval, and then get your money!

*Website Advertiser Disclosure: AdvancePoint Capital does not sell your information to any 3rd parties.

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* All loans made by either WebBank, an FDIC-insured Utah industrial bank, or Bank of the Internet Federal Bank, an FDIC-insured federally chartered thrift located in California. In connection with the loans, the Banks' underwriting conditions and terms apply.