A working capital loan can help finance ongoing or short-term business expenses, like payroll, rent and inventory. The best working capital loan depends on your qualifications and how much you need.
A working capital loan is a catch-all term for short-term business financing. Due to its flexible nature, working capital funding is an ideal fit for unexpected business expenses or extra cash to expand and grow your business.
The repayment plan and timeline will vary depending on your loan type. Some lenders may require daily or weekly payments from your credit card sales or direct payments from your business checking account.
Working capital loans can be used to cover operating expenses for small businesses, such as payroll, daily costs, inventory and more.
Pros | Cons |
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Flexible funding for a wide range of business purposes Quick funding from some online lenders Accessible to a wide range of businesses with varied minimum requirements | Interest rates can be high due to factor rates Some lenders require daily or weekly payments Collateral may be required for a secured business loan |
If you receive multiple working capital loan offers, consider the following factors when picking the loan that best fits your needs:
Our in-depth catalog of small business lender reviews is a great way to compare business loan options before signing on the dotted line.
When we made our list of best working capital loans, we considered the type of loan product, the required length of time in business, interest rate and term length.
To appear on our list, lenders needed to meet the following criteria:
A working capital loan can be used to cover almost any day-to-day operational expense for your business, such as payroll, rent, utilities, purchasing inventory or covering seasonal lulls. You can use a term loan, line of credit, SBA loan or merchant cash advance for working capital purposes.
To purchase equipment, machinery, or property, consider equipment loans or commercial real estate loans.
Requirements will vary by lender, but you typically need a credit score of 670 or higher to qualify for the best working capital loan rates — although some online lenders offer working capital loans to those with scores as low as 500.
Lenders also consider how long your business has been in operation, most requiring six months to two years. Additionally, you must meet the lender’s annual revenue requirements by providing six months to two years of tax returns and/or bank statements.
While some lenders offer working capital loans for startups, as well as other small business working capital loans, newly established businesses might need to consider other funding options, such as business credit cards or crowdfunding for business.
Some alternative business lenders work with business owners with limited or poor credit. For example, Fora Financial’s minimum credit score requirement is only 500. However, these bad credit business loans tend to come with higher interest rates and less favorable terms than traditional bank loans.