Working Capital Line of Credit: Your 5 Best Options

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Working Capital Line of Credit: Starting Your Search

A working capital line of credit is a business line of credit that a business owner uses to cover a business’s operating costs, such as payroll, inventory, or rent.

This business loan option is one of the most helpful solutions for business owners with cash flow gaps or seasonal cycles.

In this guide, we’ll take a close look into all there is to know about working capital lines of credit. We’ll also cover details on these top five options for a working capital line of credit:

Best Working Capital Lines of Credit for Small Businesses

Lender Eligibility Credit Line Amounts and Terms Cost
Kabbage
One year business history; $50K annual revenue; no credit score minimum
$2K – $250K; 6, 12, or 18 months
1.5% – 10% per month
OnDeck
One year business history; $100K annual revenue; 600 credit score
$6K – $100K; 6 months
13.99% – 36% APR
BlueVine
Six months’ business history; $100K annual revenue; 600 credit score
$5K – $250K; 6 or 12 months
4.8% – 51%
Fundbox
Three months in business; $25K annual revenue; 500 credit score
$1K – $100K; 12 or 24 weeks
Starts at 4.66%
Headway Capital
One year in business; $50K annual revenue; 550 credit score
$5K – $100K; 12, 18, or 24 months
 0.11% – 0.22% daily interest

Here is your comprehensive guide to working capital lines of credit in 2019:

See Your Loan Options

What Is Working Capital?

A business’s net working capital is equal to a business’s current assets minus its current liabilities. To break down that term even further, current assets refers to everything a business has in cash or that could feasibly be converted to cash within one year. Meanwhile, a business’s current liabilities are all its debts and obligations that are due within the year.

Essentially, whatever liquid assets that are left over after all short-term debts are accounted for is a business’s working capital. Working capital not only indicates a business’s short-term financial health, but also refers to the capital that a business has on-hand to spend on day-to-day expenses.

What Is a Working Capital Line of Credit?

A working capital line of credit is a line of credit that a business acquires for the purpose of working capital rather than for the purpose of investing in one specific purchase.

A business line of credit allows small business owners to borrow up to a certain limit. The funds must be paid back within a specified time frame. Lines of credit are a good way to fill unpredictable gaps in your business’s cash flow.

Unlike more traditional funding options, with a line of credit, business owners only have to pay back what they end up using. You can draw from your line of credit whenever you want, and you’ll repay the funds over a set amount of time with interest. Once you’ve repaid what you owe, your credit line typically resets to the original amount. For this reason, lines of credit are called revolving credit lines.

If you need a line of credit to help with your day-to-day cash flow, to aid you in paying employees, or to cover miscellaneous maintenance costs, to name a few examples, then this would be considered a working capital line of credit.

You should consider working capital loans if you know you’ll need a certain amount of financing. Lines of credit give you more flexibility to draw and spend funds on an as-needed basis.

Working Capital Line of Credit: Top Options

These are some of the best working capital lines of credit for small business owners:

1. Kabbage

Kabbage is an online lender that specializes specifically in working capital lines of credit. Their product ranges from $2,000 to $250,000, and applicants can choose among six-month, 12-month, and 18-month repayment terms. Additionally, Kabbage will charge you anywhere from 1.5% to 10% of your remaining loan amount every month you have it.

If you meet their minimum requirements of 12+ months of business history and $50,000+ in annual revenues, Kabbage can fund you with a line of credit on the same day that you apply.

See If You Qualify for Kabbage

2. Headway Capital

Next up, Headway Capital is another lender that provides working capital lines of credit. Their product ranges from $5,000 to $100,000 with terms from 12 to 24 months. Your line of credit from Headway Capital will come with daily interest of 0.11% to 0.22%. Plus, you’ll be able to choose between weekly or monthly payments with this working capital line of credit option.

As long as you have one year of business history and $50,000+ in annual revenue, then Headway Capital can fund you with a line of credit in as few as two business days. One bonus to this line of credit is the ability to save on interest if you pay back your balance early.

See If You Qualify for Headway Capital

3. BlueVine

Another lender that offers a working capital line of credit, BlueVine calls their product “Flex Credit.” This product ranges from $5,000 to $250,000 and lasts either six or 12 months. The Flex Credit product also comes with interest rates ranging from 4.8% to 51%.

For the Flex Credit product, you’ll need a 600+ FICO score, at least six months of business history, and $100,000+ in annual revenue. If you qualify, you’ll be able to get funded with BlueVine in just a couple of business days.

See If You Qualify for BlueVine

4. Fundbox

Fundbox is another lender that offers working capital lines of credit. These credit lines range from $1,000 to $100,000, making Fundbox a good option even for business owners who just need a small amount of financing. The borrower can choose between a repayment term of 12 or 24 weeks.

The highlight of Fundbox is the fast application process. You can simply connect your business bank account or accounting software to the Fundbox application, and they will be able to give you a credit decision within minutes. To qualify, you need a 500 credit score, three months in business, and $25,000 of annual revenue. The interest rate starts at 4.66%.

See If You Qualify for Fundbox

5. OnDeck Capital

Last up on our list of working capital line of credit lenders is OnDeck Capital. This lender provides lines of credit anywhere from $6,000 to $100,000 that come with six-month term lengths. The APRs on OnDeck’s lines of credit range from 13.99% to 36%, which is relatively low compared to the other providers.

In order to qualify for this credit option, you’ll need a 600+ FICO score, 12+ months of business history, and $100,000+ in annual revenue. If you’re able to move quickly with getting OnDeck the information they need in the underwriting process, they could get you a line of credit as soon as the same day.

See If You Qualify for OnDeck

How to Use a Working Capital Line of Credit

A working capital line of credit can be used for many reasons, including the following:

  • Making pre-season purchases for seasonal businesses
  • Fulfilling large, unexpected orders without having to request advances from suppliers
  • Covering rent, payroll, and utilities when you’re facing a cash flow shortage
  • Addressing emergency repair costs
  • Providing peace of mind that you have a back-up working capital source

Working Capital Line of Credit: The Terms

Here are the terms you can expect on a working capital line of credit:

    Working Capital Line of Credit Amounts

    A  working capital line of credit can range in size from $1,000 to $1 million or more. Be sure to note that the size of your credit line won’t mean that you’ll be paying that much back no matter what.

    As with any line of credit, you’ll only have to pay back what you spend. The size of your working capital line of credit is simply the maximum amount you can spend before you pay off your balance.

    Working Capital Line of Credit Rates

    Different lenders charge different rates on working capital lines of credit, and they also quote cost differently. Some might quote a weekly rate and others an annual percentage rate (APR). APR is a good way to compare the cost of different lines of credit because APR includes fees, such as draw fees and application fees. Generally speaking, rates for working capital lines of credit could range anywhere from 10% to 80% APR.

    This rate varies based on your business’s qualifications, such as your annual revenue and personal credit score.

    Working Capital Line of Credit Term Lengths

    Working capital lines of credit tend to have shorter repayment terms ranging from six months to five years. Remember that every time you repay your balance, your available credit should increase by the same amount. When the term is up, many lenders will allow you to renew your line of credit if you have a history of on-time payments.

    Working Capital Line of Credit Funding Speed

    Working capital lines of credit are one of the best solutions for short-term costs simply because they fund so quickly. If you qualify for a working capital line of credit, then you could get your hands on it in as little as one business day.

    The time to funding will vary from case to case. For instance, smaller lines of credit will be faster to fund, and larger lines of credit will take a few more days to underwrite.

Working Capital Line of Credit: The Requirements

While there are some general business line of credit requirements, minimum requirements will vary from lender to lender. Generally speaking, these are the basic criteria to aim for in order to qualify for a line of credit:

  • At least six months of business history
  • At least $50,000 in annual business revenue
  • 500 credit score

The Advantages and Disadvantages of Working Capital

The Advantages of Using a Line of Credit for Working Capital

Having combed through all of the details on your best working capital line of credit options, let’s zoom out a bit.

By and large, what are the advantages of funding your working capital needs through a line of credit?

Let’s take a look at each of the main perks that working capital lines of credit provide:

    Flexibility in How You Use It

    One of the biggest perks of funding with a working capital line of credit is its flexibility in terms of how you can use it.

    As long as you’re investing in your business’s running costs, you’ll be able to use the funds you secure through your working capital line of credit as you see fit.

    Whether you need to pay an employee, fulfill a big order, or fix some equipment, your working capital line of credit can help.

    Quick Funding

    If you need funding quickly, most working capital line of credit lenders can get it to you in time.

    Plus, if you secure a line of credit as a preemptive measure, you can have it in your back pocket for future instances when you’ll need funding ASAP. The best part is that you can have it but not accumulate any debt if you don’t need to use it.

    Opportunity doesn’t wait, and you won’t have to wait for funds if you have a working capital line of credit.

    Revolving Funds

    The final main perk of working capital lines of credit is that they provide revolving funds for your business. When you fully pay off your balance, your line of credit will be available in full again.

    For instance, if you have a line of credit of $100,000 and you spent $10,000 of your credit line last month, once you pay down that $10,000 plus interest, then your credit line will be restored to $100,000.

The Disadvantages of a Working Capital Line of Credit

Lastly, because no funding option is perfect, it’s time we take a look at the bigger picture from a different perspective.

What are the downsides to funding your working capital needs with a line of credit?

Well, there’s one main downside, and it’s cost.

    Expense

    Put simply, “working capital” is often code for “short-term,” and short-term funding often ends up being far more expensive than long-term funding. However, long-term funding tends to be less flexible with its uses.

    Before financing with a working capital line of credit, you should know that this type of debt tends to be on the expensive side.

Working Capital Lines of Credit: The Bottom Line

At the end of the day, because working capital lines of credit are short-term funding options, they’re going to be more expensive than long-term options. That said, sometimes you need flexible, quick capital. In this case, a working capital line of credit might be just the way to go.

Compared to short-term loans and merchant cash advances, working capital lines of credit often offer more affordable and flexible capital. If you’re looking for a short-term funding option to cover everyday expenses without breaking the bank, then the working capital line of credit is probably your best bet.

See Your Loan Options
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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