Working Capital Loans: The 6 Best Options of 2020

Updated on March 9, 2020
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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.

Below is a quick comparison of the top options for working capital loans. In this guide, 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.

Best Working Capital Loans for Small Businesses

Lender Eligibility Loan Amount and Term Cost
LoanBuilder
Nine months’ business history; $42K annual revenue; 550 credit score
$5K – $500K; 13 – 52 weeks
2.9% – 18.72% fixed fee
Kabbage Funding
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
$5K – $500K; 3 – 36 months
9.99% – 79% annual interest rate
BlueVine (invoice factoring)
Three months’ business history; $100K annual revenue; 530 credit score
$20K – $5M; 1 – 13 weeks
0.3% – 1.7% per week
Fundbox
Three months in business; $25K annual revenue; 500 credit score
$1K – $100K; 12 or 24 weeks
Starts at 4.66%
Amex Merchant Financing
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% – 20% fixed fee

 

Apply for Working Capital Loans

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:

1. 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 business capital loans, you’re given a lump sum of money that’s paid back with interest over three to 18 months.

2. Working Capital Lines of Credit

A working capital line of credit gives 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.

3. Merchant Cash Advances

Working capital loans can also come in the form of merchant cash advances. In this case, merchant cash advance 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. While merchant cash advances offer an easy working capital solution, they’re also very expensive.

4. 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.

5. 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.

Apply for Working Capital Loans

Top 6 Options for Working Capital Loans

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:

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 550 credit score for the business owner.

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

See If You Qualify for PayPal

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.

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

See If You Qualify for Kabbage Funding

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 will attach 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.

See If You Qualify for OnDeck

4. BlueVine

BlueVine is yet another alternative lender that offers accessible and affordable small business working capital loans. BlueVine working capital can come in two forms—a business line of credit or invoice financing.

While 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.

See If You Qualify for BlueVine

5. Fundbox

The alternative lender Fundbox offers a working capital line of credit between $1,000 to $100,000. The repayment term is either 12 or 24 weeks.

Aside from their working capital loans themselves, Fundbox stands out thanks to their underwriting process, as well. They have a very quick application process, and you can find out if you’ve been approved in just a few minutes. To qualify for Fundbox, you need just $25,000 in annual revenue, a 500 credit score, and three months in business.

Best for: Startups and business owners with lower credit who need working capital.

See If You Qualify for FundBox

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, and repay it, 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 3% 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.

See If You Qualify for Amex

Working Capital Loans: 5 Reasons to Finance Your Small Business

Unlike most small business loans, which are invested into 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.

A business’s net working capital consists of assets that can be converted into cash within 12 months, minus liabilities that are due within 12 months. Basically, it’s the money you have left over after you’ve worked out how much you’ve made and how much you need to pay out. Things like payroll, rent, and utilities all come out of working capital.

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.

Here are five ways that you can put working capital loans to work for your small business:

    Handle Downtime

    Every business experiences downtime every now and again—especially seasonal businesses. For example, you might make a large portion of your sales during the holiday season or warm summer months. There’s nothing wrong with this, but it is a must to have enough working capital to get by during the other times of the year.

    Growth and Expansion

    Are you ready to take your company to the next level? Is expansion on your mind? With enough working capital, you’re in a position to act fast if a business opportunity arises. The same can’t be said if you’re in the position of negative working capital. In fact, this can work against you when you’re trying to grow.

    Prepare for an Emergency

    What will happen if your biggest client goes out of business? What if you’re hit with a lawsuit? This can greatly impact your financial situation. When you have working capital, you can handle business emergencies without having to scramble to find the necessary funds.

    Pay Short-Term Debt Obligations

    Short-term debt is a way of life for many companies. You need enough working capital to repay your debt on time and keep your business finances healthy.

    Peace of Mind

    With no working capital finances, you’re always on the “edge of the ledge.” If anything goes wrong, even something small, it could cause serious financial damage. For your own peace of mind, do your best to have access to enough working capital for operational costs at all times.

Working Capital Loans: Final Thoughts

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.

There are endless uses for working capital loans in a healthy small business. What’s more, with online lenders like Kabbage Funding and Fundbox, a working capital loan might be more achievable than you think.

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 get the best rate possible.

 

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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