The Best Working Capital Loan Options and How to Get Them

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What Is a Working Capital Loan?

Working capital loans are characterized by short repayment terms and smaller loan amounts, designed to solve for day-to-day business needs.

They’re best for short-term needs such as meeting payroll, buying inventory and supplies, paying outstanding invoices, and taking care of other operational expenses. Businesses with seasonal cycles can use working capital loans to ensure they have enough resources to stay operational throughout the year.

Here, we’ll dig into the details of how these small business loans work and where to find the best working capital loans for your business.

In This Guide

Working Capital Overview

Before we break down the best options for working capital loans, it’s important to understand working capital and how it’s calculated.

In short, working capital is the difference between your current assets (what your business owns) and your current liabilities (what your business owes).

Therefore, to find working capital for your business, you can use this formula:

Current Assets – Current Liabilities = Working Capital

If you don’t have enough working capital on hand, you might decide to get a working capital loan to help cover your short-term financing needs.

Types of Working Capital Loans

In a perfect world, you’d be able to increase working capital simply by generating more business revenue. Unfortunately, this just isn’t the way things work for every company.

Business working capital can be fickle for many small businesses—especially for those that are just starting out or operating seasonally. As a result, many small businesses have to think outside the box. One solution is to apply for working capital loans.

These are some of the different types of working capital loans that are available:

Short-Term Loans

Business capital in the form of a short-term business loan is the most common type of working capital loan. With short-term loans, you’re given a lump sum of money that’s paid back with interest over three to 18 months.

Working Capital Lines of Credit

A working capital line of credit gives you access to a pool of funds that you can tap into as needed. You only have to pay interest on the funds that you end up using.

A line of credit is a particularly good option for business owners who want to set up an emergency fund because the money is there if and when you urgently need working capital.

Merchant Cash Advances

Working capital loans can also come in the form of merchant cash advances (MCAs). In this case, MCA companies advance you a sum of cash, which you’ll pay back by allowing the company to take a fixed percentage of your daily credit card sales.

Although merchant cash advances offer an easy working capital solution, they’re also very expensive.

Invoice Financing

Small businesses often face a shortage of working capital due to late payments and unpaid invoices. Therefore, invoice financing is a solution for business owners whose working capital is tied up in outstanding invoices.

Invoice financing allows you to trade in your unpaid invoices for business capital, freeing up cash to use for your business’s daily operations.

SBA Loans

An SBA loan is a low interest rate business loan backed by the U.S. Small Business Administration. The SBA 7(a) loan works particularly well for working capital, offering business capital in amounts up to $5 million to use for a variety of business purposes.

Best Working Capital Loan Options

The following six working capital lenders offer business capital with a balance of accessibility, affordability, and convenience. These are the best options for working capital loans:

Best Working Capital Loans for Small Businesses

Lender Eligibility Loan Amount and Term Cost
Nine months’ business history; $42K annual revenue; 620 credit score
$5K – $500K; 13 – 52 weeks
2.9% – 18.72% fixed fee
One year business history; $50K annual revenue; no credit score minimum
$2K – $250K; 6, 12, or 18 months
1.5% – 10% per month
One year business history; $100K annual revenue; 600 credit score
$5K – $500K; 3 – 36 months
9.99% – 99%
Three months’ business history; $120K annual revenue; 530 credit score
$20K – $5M; 1 – 13 weeks
0.25% – 1.7% per week
Six months in business; $15K monthly revenue; 500 credit score
$5K – $400K; 6 – 18 months
1.15 – 1.45 factor rate
Accept Amex cards; two years in business; $50K annual revenue; $12K in annual credit and debit card sales; no credit score minimum
$5K – $2M; 6, 12, or 24 months
1.75% – 28% fixed fee

1. LoanBuilder, a PayPal Service

Through LoanBuilder, a PayPal product, small business owners can access short-term working capital loans between $5,000 to $500,000. These short-term loans come in the form of one lump sum that you’ll repay, plus interest, with weekly payments over a term as short as 13 weeks or as long as 52 weeks.

LoanBuilder charges interest as a total percentage of the loan amount, spanning between 2.9% to 18.72%. For example, if you have a $100,000 loan with a quoted rate of 5%, then you’ll pay $5,000 in interest. To qualify for LoanBuilder, you need at least nine months of business history, $42,000 in annual revenue, and a 620 credit score for the business owner.

Best for: Business owners who need working capital and are okay with very short repayment terms.

2. Kabbage Funding

With Kabbage Funding, you can borrow between $2,000 and $250,000 as a working capital line of credit. The repayment terms are six, 12, or 18 months. Kabbage Funding stands out from other lenders because they combine multiple sources of information to determine your creditworthiness, instead of relying on your credit score or history alone.

They require $50,000 of annual business revenue and one year in business, but have no minimum credit score requirements. Kabbage Funding charges a fee of 1.5% to 10% per month on their line of credit.

Best for: Best for business owners with lower credit scores who need an accessible line of credit for working capital purposes.

3. OnDeck

OnDeck has a number of working capital loan options for small businesses, including short-term loans and business lines of credit. Their working capital loans range from $5,000 all the way up to $500,000, and you can be approved in as few as 24 hours.

The fees that OnDeck attaches to their working capital loans will depend on your credit rating, your cash flow situation, and if you’ve borrowed with OnDeck before. Annual interest rates start at 9.99%. To qualify, you need at least one year in business, a credit score of 600, and $100,000 in annual revenue.

Best for: Established businesses that have a little more revenue.

4. BlueVine

BlueVine working capital can come in two forms—a business line of credit or invoice financing.

Although invoice financing will provide a one-off advance for your business’s outstanding invoices, a line of credit will allow your business to access revolving credit and gradually repay it over time.

The details on the terms that BlueVine attaches to their working capital loans will vary based on which of the two you choose, but either way, they’ll be a solid way to access short-term financing to rev up your small business’s working capital.

Best for: Business owners who have capital tied up in unpaid invoices and need fast access to working capital.

5. Credibly

The alternative lender Credibly offers a working capital short-term loan in amounts ranging from $5,000 to $400,000. The repayment term ranges from six to 18 months.

Aside from their working capital loans themselves, Credibly has a fast, online-based application process—and can fund applications as fast as the same day as you apply. On average, however, most customers will receive funds within three to five days.

Plus, although Credibly’s interest rates fall within the same range as other lenders on the market, Credibly does offer prepayment incentives for paying back your loan early.

To qualify for one of these working capital loans, you’ll need $15,000 per month in revenue, a 500 credit score, and six months in business.

Best for: Working capital loans for startups; business owners with lower credit who need working capital.

6. American Express Merchant Financing

Finally, through American Express Merchant Financing, Amex offers working capital loans to businesses that process American Express credit card transactions from customers. Through this working capital loan, you’ll receive a lump sum of cash from Amex of anywhere from $5,000 to $2 million, which you’ll repay, plus a set fee, through a percentage of your credit and debit card transactions.

The fees attached to this merchant financing could be as low as 1.75% of your loan amount and as high as 28% of your loan amount, so how affordable this working capital loan ends up being can vary.

Best for: Business owners who accept Amex credit cards and need a large lump sum loan to finance working capital.

How to Find a Working Capital Loan for Your Business

Now that we’ve reviewed some of the best options for working capital loans, you might be wondering how to actually get one of these business loans.

You can find a working capital loan for your business by following these steps:

  1. Calculate your existing working capital to determine how much financing you need.
  2. Determine which type of loan is best for your business.
  3. Evaluate your business’s credit history, annual revenue, time in business, and other qualifications.
  4. Compare top working capital lenders and find one that offers the type of loan you’re looking for—and whose requirements you can meet.
  5. Gather your documents and submit an application.
  6. Complete the closing process and receive your funds.
  7. Use your funds and manage your working capital.

Using Your Working Capital Loan

Unlike most small business loans, which are invested in assets to grow your business, working capital loans are used for ongoing costs. Running costs might include payroll, invoices, rent—anything that’s involved with keeping the lights on, so to speak.

Therefore, your company will be in a much better position if you’re functioning with positive working capital. And working capital business loans help to ensure that this is the case.

That said, here are some ways you can put your working capital loan to work for your small business:

  • Cover seasonal gaps
  • Take advantage of growth opportunities
  • Prepare for an emergency
  • Pay short-term debt obligations
  • Have peace of mind to cover operational costs

How to Manage Your Working Capital

After you find a working capital loan for your business, you should use that loan responsibly and take measures to better manage your working capital in the future. This will prevent you from having to take on additional debt in the future.

What are the best practices for managing working capital? Here are some basic working capital management tips:

  • Carefully monitor your expenses: Even the smallest, most inconsequential expenses add up. Setting clearly communicated rules for your employees is crucial to keeping expenses like travel and entertainment to a minimum. Plus, as the business owner, you should be sure to be watchful of company-wide expenses and cut back on costs wherever you can.
  • Improve your receivables collection: Many companies have working capital that’s trapped in their customers’ unpaid invoices. If this is a recurring issue for your business, consider adjusting your collection process to better secure what you’re owed on time. When auditing your invoicing system, think through how you can send out your invoices faster, employ technology to shorten the payment cycle, or offer early payment discounts to customers to encourage quick payment.
  • Pay your vendors on time: Businesses that have fewer days of accounts payable outstanding tend to have better relationships with their vendors. And having a better relationship with your vendor can put you in a better position for negotiating. When negotiating, you can secure better deals, payment terms, and even discounts. If you keep your suppliers happy, you might save some money in expenses in the long-term—helping out your working capital reserves.
  • Reinvest in your business: Redirecting money back into your company is a good thing. That’s the best way to grow in the short-term. Just make sure you’ve left some room for regular expenditures when deciding how much working capital to have on hand at any given time.

Frequently Asked Questions

The Bottom Line

Working capital loans are incredibly flexible and can pay big dividends. They can tide you over between paying suppliers and getting paid by customers, help take on a big order, or give you the capital to stock up prior to the busy season.

Like any sort of loan, it’s absolutely essential that you look closely at the costs and fees associated with a working capital loan before accepting a loan offer.

Because of their relatively small size, their fast-tracked approval process, and their frequently unsecured nature, they often come with high interest rates. Make sure you get a few different quotes to find the best possible working capital loan for your business.

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Vice President and Founding Editor at Fundera

Meredith Wood

Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. She launched the Fundera Ledger in 2014 and has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and her advice has appeared in the SBA, SCORE, Yahoo, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, and more. Email: meredith@fundera.com.
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