Small Business Guide to Working Capital Loans

Last updated June 4, 2025

If you’re finding that your business is frequently tight on available capital to put toward day-to-day business needs, then consider a working capital loan. It’s a type of

small business loan

that’s characterized by short repayment terms and smaller loan amounts and is designed to meet short-term needs.

Working capital loans are ideal for essential business costs 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.

We’ll dig into the details of how these business loans work and how to find the best working capital loans for your business.

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What Is Working Capital?

Before we dive into the details, let’s cover the basics. In short, working capital is the difference between your current assets (what your business owns) and your current liabilities (what your business owes).

To determine how much working capital your business has available, you can use this formula:

Current Assets – Current Liabilities = Working Capital

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.

Working capital can be fickle for many small businesses—especially for those that are just starting out or operating seasonally. A working capital loan can be helpful in these or similar situations.

Types of Working Capital Loans

Here are some of the different types of working capital loans that are available.

SBA Loans

SBA loans

are low-interest-rate business loans backed by the U.S. Small Business Administration.

SBA 7(a) loans

are a particularly good fit for working capital, offering business financing in amounts up to $5 million to use for a variety of business purposes.

Business Term Loans

Short-term business loans

are 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 24 months. These loans carry higher interest rates than

long-term business loans

, but they typically fund a lot faster, many within just a few days.

Business Lines of Credit

business line of credit

gives you access to a pool of funds that you can tap into as needed. A unique benefit of this loan type is you only have to pay interest on the funds 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.

Invoice Financing

Invoice financing

is a helpful solution for business-to-business (B2B) and service-based companies with working capital that’s tied up in outstanding invoices.

This options allows you to trade in your unpaid invoices for business capital, freeing up cash to use for your business’s daily operations. Similar to paying interest on a loan, you’ll pay a fee to the invoice financing company for each week an invoice goes unpaid. But for some businesses, the immediate access to working capital is worth the tradeoff of fees.

Merchant Cash Advances

Merchant cash advances

(MCAs) can also be used for working capital, but it’s important to note that these are not loans. With this type of financing, MCA companies advance you a sum of cash, which you pay back by allowing the company to take a fixed percentage of your daily credit and debit card sales.

Although merchant cash advances offer an easy working capital solution, they’re also the most expensive financing option on the market and should be used only as a last resort.

How to Find a Working Capital Loan for Your Business

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

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

For more in-depth information on this process, follow our

6-step guide to getting a business loan

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.

Here are some best practices for managing your working capital:

Carefully monitor your expenses. Even the smallest expenses add up. Audit your business expenses for a few months, keeping a watchful eye out for costs you can slim down or eliminate altogether. For example, can you shop around for less expensive business software, or perhaps lower your utility bills by installing LED bulbs and smart plugs? If you have employees with a travel and entertainment budget, that’s a great place to start implementing maximum spend policies to reduce business expenses.
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 may save some money in expenses in the long-term—helping out your working capital reserves.
Improve (or begin) forecasting cash flow. You’re likely already tracking your cash flow on a regular basis (monthly, quarterly, or annually). But the next step, if you’re not doing so already, is to run financial projections to forecast your cash flow, which can empower you to make decisions to best manage your working capital. And if you’re not yet forecasting cash flow, that is an excellent first step in managing your working capital. Some accounting software programs include cash flow forecasting as a feature.

Fundera Can Help

We’re here to take some of the effort of finding a working capital loan off your plate.

Answer a few questions—with no impact to your credit score and free of obligation—to see which working capital loans you qualify for. We’ll advise you through the entire loan process, from comparing options to signing your agreement.

Let’s get you funded!