What Are Working Capital Loans for Small Businesses?
Working capital loans for small businesses are short-term financing to help small businesses make up for a cash shortfall. The need for a working capital loan may be due to a small business growth period or an unforeseen circumstance, such as a one-time spike in supply chain costs, increased payroll expenses, or a natural ebb and flow of cash. This kind of business financing option can be used to cover operational expenses and overhead, and it does not mean the business is in trouble. Many businesses need financing at various junctures to bridge short-term revenue gaps or help scale to the next growth stage.
Types of Small Business Working Capital Loans
Small business owners can access several working capital loans depending on their needs and eligibility.
Type of Working Capital Loan | Purpose |
Short-Term Working Capital Loans | To cover short-term cash need |
Long-term Working Capital Loans | To cover recurring, ongoing or longer-term capital project |
Secured Working Capital Loans | To cover your company’s temporary operational expenses |
Unsecured Working Capital Loans | Immediate cash to take advantage of new opportunities |
Small Business Administration Loans | Get started with funding your small business while reducing your risk with SBA- backed loans |
Business Line of Credit | Funds up to a specified amount that can be drawn from as needed (and only repaid for the amount withdrawn) |
Invoice Factoring | Do you need working capital to cover cash flow gaps between sales and purchases? |
How to Secure a New Business Capital Loan?
Whether you are a micro, small, or medium-sized business, you can apply for a business loan through a traditional lending institution like a bank or online lenders. The process is becoming more and more seamless as FinTechs and digital lenders help make the business capital loan process more frictionless than ever.
Platforms like BusinessLoans.com have helpful resources that allow small business owners to compare and contrast their options for working capital loans to determine what works best for them without having to pull credit.
Steps to Secure Working Capital for Your Small Business
Evaluate your business finances. Begin by looking at factors such as cash flow, revenue streams, and current debts to get an accurate picture of what kind of loan you will need, plus the amount of money available for repayment.
Price comparison shop. Consider your options. You can apply for a working capital loan with a traditional lending institution, which can take time. Online lending offers alternative lending, which compares several sources of financing in one place. Before you commit to a price, resources like BusinessLoans.com can help you consider your options.
Determine what meets your criteria. Consider the loan amount, interest rates, repayment amounts and terms, and any affiliated fees. If ROI is a factor in your decision, such as buying inventory, be sure to include it in your decision-making process.
Gather your documents: Be sure to have all your documents ready beforehand, including business financials (tax returns, P&L, etc.), bank statements, voided checks, identification, and sometimes business utility bills. You’ll need to submit several documents as a part of the application process.
Flex your capital. You’ve been approved! Business owners will receive instructions on when and how to receive the funds. Online lenders tend to process loan applications and deliver funds faster than traditional financial institutions via direct deposit. But be on the lookout for your funds.
Can I Get a Working Capital Loan for My Small Business With Bad Credit?
There are opportunities to get working capital loans for your small business despite poor credit or little credit history. Unsecured loans are one option that removes the need to provide collateral. Multiple online lenders will lend despite lower credit scores or monthly revenues, though you can expect higher interest rates and stricter terms.
Best Small Business Capital Loans
- OnDeck: Best fast working capital
- SBA: Best for established businesses
- Creditability Capital: Best for large purchases
- Fundbox: Best for startups
Remember, the best way to find out if you’re eligible is to research the criteria and types of small business capital loans you might be able to access. Platforms such as BusinessLoans.com can help you compare multiple options and determine the best option for your business.
