The process for applying for working capital financing varies by loan type and lender. However, here are the steps you will likely need to take to get a small business loan:
1. Decide how much you need. Write a list of your company’s most urgent needs and estimated operating costs. Consider whether you need the funds upfront or prefer ongoing access to cash on an as-needed basis. Use our business loan calculator to estimate your borrowing power, making sure the weekly or monthly payments are within your budget.
2. Determine your eligibility. Lenders will typically list their business loan requirements on their website. Factors that determine your creditworthiness usually include your credit profile (your personal FICO Score and business credit score), time in business and annual revenue. Some working capital loans also require a personal guarantee or collateral, such as with secured business loans.
3. Compare small business lenders. You can apply for a working capital loan with a traditional bank, credit union or an online business lender. Compare interest rates, repayment terms and additional fees to find the best loan option for your business needs.
4. Gather required documents. Having essential documents ready can help speed up the application process. You will likely need a business plan, personal and business bank statements, personal and business tax returns and any applicable business licenses.
5. Submit your application. The application process is typically quick and automated, often done online. Your lender may reach out to you for additional information and next steps.
How to calculate your working capital needs
Net working capital refers to the amount of money you have readily available to cover your operational expenses and business debts. To calculate your net working capital, subtract your liabilities (what you expect to spend on ongoing expenses like inventory, payroll, taxes and debt payments) from your current assets (the cash that is currently available in your business bank account plus any outstanding customer payments.)
If the result is a positive number, it usually means you have the funds needed to support your ongoing operations and potentially invest in business growth. Though some fluctuation is normal, negative net capital could mean that your liabilities exceed your current assets — and a working capital loan might help bridge the gap.
That being said, taking out a new loan will add to your liabilities, so it’s important to avoid borrowing more than you can realistically afford to repay. Otherwise, you could end up in a dangerous debt cycle that hurts more than it helps you.