Working capital loans for short & long term projects.
We’re here to help businesses of all sizes!
Working capital loans for short & long term projects.
We’re here to help businesses of all sizes!
No personal guarantee*
Funded within a few days
Past credit issues may be OK
Within 24 hours of application
When you need working capital to get you through a big project, or for day to day business needs, our lender network has the right working capital program for your business.
$10,000 to $5 million
Starting at 9%
3 months – 10 years
1-3 Business days
Every business needs extra working capital at some point. A host of unforeseen circumstances can cause revenue to dry up or compromise the majority of operational funding. Common examples include bad weather, changes in demand, or even a fire in the business next door. The inevitability of these events resulted in the popularization of Working Capital Loans. While other products are geared towards long-term investments or massive expenses, Working Capital Loans are designed to help businesses recover from temporary cash flow issues and take advantage of new opportunities.
If you don’t need a lot of money but need more than a little, Working Capital Loans could be the exact solution you’re looking for.
In this guide, we’ll answer the following questions:
Before diving into an explanation of working capital loans, it’s important to understand the basics of working capital.
Working capital refers to the money needed to cover everyday operating expenses in your business. These are the day-to-day costs of keeping your business running. Typical expenses covered by working capital include payroll and rent.
A more formal explanation is that working capital is the difference between your current assets and your current liabilities. Your current assets include cash and easy-to-liquidate investments (for example, savings account balances). And your current liabilities are any debts owing that must get paid within the next 12-month period, including all accounts payable.
A working capital loan helps gives businesses the cash they need to cover these ongoing, everyday, operational costs. A working capital loan can come in a variety of forms, including as a short-term working capital loan, merchant cash advance, invoice factoring agreement, a special SBA loan, or even as a business credit line.
Working capital loans may also be known as operating capital loans.
Why You Need Working Capital in Your Business
In a perfect world, working capital comes from the cash flowing into your business due to sales of your service or product. However, not all businesses enjoy a smooth cash flow all the time. Your business could be starting out, and slowly increasing your customer base. Or maybe you operate a seasonal business. In this case, you might have less working capital during your off-season. A lack of working capital makes it tough to keep up with bills you must pay each month – bills that are due whether your business is booming or not.
When your business lacks working capital, you need to tap into a different source for a capital injection. That is where a working capital loan comes into play.
$10K – $5M
3 months – 10 years
Starting at 9%
1-3 Business days
Though Working Capital Loans come in many forms, each version has a few things in common. Unlike more traditional products, Working Capital Loans can be accessed by borrowers with subpar credit and less than one year in business. You don’t need collateral or even a personal guarantee. Due to these loose requirements and the shorter terms, interest rates tend to run on the higher side.
Since Working Capital Loans are more accessible through online lenders, you don’t have to specify how you plan to use the money. Some online lenders offer multiple types of Working Capital Loans. Thus, they would recommend the repayment structure that makes the most sense for your cash flow and the problem at hand. For example, a Merchant Cash Advance might be best for a highly seasonal business that’s looking to cover operational expenses during the slow season. A Business Line of Credit, on the other hand, might be best for a company that’s looking to bridge a much shorter gap in cash flow. For standard short-term loans, terms can be as little as just four or five months. Other types of Working Capital Loans can have terms as long as several years.
Also, your borrowing amount isn’t just the sum of your monthly expenses. It must additionally account for your current liabilities, or what your business owes in the near future (loans, accounts payable, taxes, etc.). To keep your business running, the borrowing amount must exceed your short-term liabilities.
According to the Voice of Small Business in America 2019 Insights Report, the most common use of new funding for small businesses was to improve cash flow and/or working capital. A full l 54% of respondents borrowed money to help smooth their cash flow or to apply to working capital.
The Fed’s 2019 Small Business Credit Survey estimates that the small business financing market is about $1.4 trillion in size.
In 2019, the Small Business Credit Survey also found that medium- and high-credit-risk applicants seeking loans or line of credit financing were almost as likely to apply through an online lender as they were to complete an application with a traditional large bank (54% and 50%, respectively). However, only 41% were likely to apply for credit through a small bank.
Also in In 2019, the SBA reports that they approved 100,495 loans totaling $32.7 billion. The SBA does offer working capital loan programs as well.
Working Capital Loans are incredibly accessible and can be approved in as little as 24 hours. You don’t need excellent credit, perfect cash flow, collateral, or more than six months in business.
This is because Working Capital Loans are designed primarily for businesses that are dealing with unforeseen circumstances. Products with higher borrowing limits, lower rates, and longer terms tend to have long application processes. Borrowers must also take time to figure out exactly how much funding they need. With Working Capital Loans, on the other hand, most borrowers are just looking for enough money to cover their operational expenses and other short-term liabilities. When it’s easy to calculate your desired funding amount, the application process goes much quicker.
Another advantage is the availability of multiple repayment structures. With the help of your business lender, you can choose the repayment structure that most effectively solves the dilemma you’re facing. And though Working Capital Loans are frequently used to fill cash flow shortages and pay short-term debts, they can also be used for growth-related investments like ordering inventory or taking on a larger, costly project.
Other types of business loans aren’t as versatile. They can only be used for a few purposes. For example, you wouldn’t take out a Business Term Loan or SBA Loan to cover operational expenses. These products are meant for significant expansion, and cannot be accessed with subpar credit and rocky cash flow.
Loose requirements place a heightened degree of risk on the business lender. In other words, borrowers with poor credit, rocky cash flow, and less than one year in business are less likely to pay off the loan on time. Thus, business lenders offset this risk by assigning higher interest rates and shorter terms. That’s why you should only explore Working Capital Loans if you’re dealing with a temporary issue. If your cash flow doesn’t recover, high rates could put your business in jeopardy.
Working Capital Loans also offer lower borrowing amounts than Business Term Loans and SBA Loans. For this reason, you can’t use a Working Capital Loan for expensive initiatives like developing a new product, renovating your physical space, adding a new division, etc. Remember, Working Capital Loans work best for short-term needs, as opposed to investments that may take years to produce results.
|LOAN TYPES||MAX AMOUNTS||RATES||SPEED|
|Merchant Cash Advance||$7.5k – $1m||Starting at 1.09||1-2 business days|
|SBA Loan||$50k-$10m||Starting at 5%||3-5 weeks|
|Business Term Loan||$10k to $5m||Starting at 5%||1-3 business days|
|Business Line of Credit||$10k to $250k||Starting at 8%||1-3 business days|
|Receivables/Invoice Factoring||$50k-$10m||Starting at 5.8%||1-2 weeks|
|Equipment Financing||Up to $5m per piece||Starting at 5%||3-10 business days|
|Revenue Based Business Loans||$10K – $5m||Starting at 9%||1-3 business days|
Who Qualifies For Working Capital Loans?
Approved businesses generally met the following criteria:
The application process may be slightly longer or shorter for different types of loans. However, all variations require very little paperwork, and you can get funded in just a few business days. Here’s how to get started:
Step 1: Choose Your Loan
We usually recommend the loan that features the most uncomplicated repayment structure for your cash flow. This depends on the length of your cash flow gap and how quickly you’ll be able to pay off the loan. For example, a Merchant Cash Advance is geared towards longer cash flow gaps and costs less when your payments are more spread out. On the other hand, short-term loans and lines of credit are geared towards shorter cash flow gaps and cost less when you can pay them off as soon as possible.
Step 2: Gather Your Documents
This step depends on the type of loan you’re applying for. Here are the documents and information you may need to get started for each option:
Step 3: Fill Out Application
You can begin the application process by calling us or filling out our one-page online application. Either way, you’ll be asked to enter the information from the previous section along with your desired funding amount.
Step 4: Speak to a Representative
Once you apply, a representative will reach out to you to explain the repayment structure, rates, and terms of your available options. This way, you won’t have to worry about any surprises or hidden fees during repayment.
Step 5: Receive Approval
For most loan products it only takes a few days to get approved. Depending on the type of loan, funds should appear in your bank account anywhere from 1-3 business days for most funding products.
Your Working Capital Loan Gets Set Up – Now What?
Your business loan isn’t just a way to get financing for your business. It’s also an excellent opportunity to start building (or improving) your credit.
Regardless of the type of business loan you get, make all of your required payments on time and in full. If you get a business credit line or another form of revolving credit, keep your balance below the credit limit.
Consistently making your business financing payments on time and in full will have a positive impact on your credit. And that means preferred rates and terms when you next need business financing.
If your application gets declined, it might be due to poor credit or the conclusion that your business cannot afford to take on more debt at this time. In this case, we might recommend alternative tools for financing your business, like a business credit card or even a personal loan. Both options are much easier to qualify for than business loans.
We might also recommend credit repair services, which focus on raising your credit score by identifying and eliminating the issues that are keeping it down.
This product makes sense for short-term needs or cash flow shortages that last no longer than a few months. In addition to covering expenses during a rough patch, common functions include ordering inventory, paying short-term debts, or taking on expensive projects that would otherwise compromise operational funding.
If you’re looking to finance a long-term investment, you might consider a Business Term Loan or SBA Loan instead.
To calculate your business’s net working capital, simply subtract your current liabilities from your current assets. The numbers that make up both parts of the equation should appear on your most recent balance sheet.
Current Assets = What your business owns (Cash, Inventory, Accounts Receivable, etc.)
Current Liabilities = What your business owes (Bills, Payroll, Loans, Accounts Payable, etc.)
Net Working Capital = Current Assets – Current Liabilities
Your current assets must exceed your current liabilities to meet short-term obligations. This, if you intend to grow your business, you should look to increase the gap between what your company owns and what your business owes.
The net working capital formula will produce an amount in dollars. Sometimes, though, looking at this number won’t immediately tell you if you have healthy working capital. Due to individual factors like industry or company size, what seems like healthy working capital for one business could represent the bare minimum for another.
The answer to your working capital ratio, on the other hand, leaves no room for uncertainty. While the net working capital formula subtracts assets from liabilities, the working capital ratio formula divides them.
Current Assets / Current Liabilities = Working Capital Ratio
A working capital ratio between 1.2 and 2.0 usually indicates healthy working capital. If your ratio is less than one, you may face liquidity problems in the near future. A ratio higher than two, however, might suggest insufficient spending or too much unused working capital. Maybe you’ve neglected to invest enough profits back into the business or failed to spend enough money to generate growth.
Businesses use working capital loans for all sorts of reasons. For example, you might use your working capital loan for any of the following things:
Of course, you can use your working capital loan for other reasons that will help your business.
Many seasonal businesses use Working Capital Loans to hire extra staff for the busy season. Rather than waiting until the last minute, companies can hire several weeks or months before the busy season begins. This gives the new hires plenty of time to learn the ropes and prepare themselves for the upcoming surge in demand. If training is particularly vital in your industry, you might consider using your loan to invest in a formal on-boarding program. When you don’t have to worry about covering operational expenses, you can focus on less on productivity and more on educating new hires about company culture, customer service, etc.
Yes, you can access all types of Working Capital Loans with bad credit. However, it’s important to remember that credit score plays a different role for different products. For example, your borrowing amount for a Merchant Cash Advance is based almost entirely on your monthly debit and credit card sales. Likewise, your credit score has hardly any impact on the accessibility of Accounts Receivable Factoring.
For a short-term Working Capital Loan, on the other hand, your credit score is indeed factored into your borrowing amount, along with your rates and terms.