Working Capital Loans

A working capital loan allows you to quickly boost your small business’s cash liquidity so you can cover operating expenses.

At a Glance

One of the best ways to access cash on a short-term basis is with a working capital loan. You can use the funds for just about anything related to your day-to-day operating expenses or a new business opportunity for your existing company.

Loan Amount $2,500 - $250,000
Interest Rates 7% - 99%
Loan Terms 3 - 18 months
Time to Funding As little as 48 hours

Advantages & Disadvantages

  • Bad credit OK
  • Quick approval
  • Limited paperwork
  • Flexible payment structures
  • Collateral typically not required
  • Minimal restrictions on use of funds
  • APR varies
  • Daily repayment terms
  • Business must be at least 1 year old
  • Not suited for long-term working capital needs

What is a Working Capital Loan?

A working capital business loan provides the money you need to keep your business running.

Working capital consists of your total amount of current liabilities subtracted from your current assets.

For your liabilities, you should include any type of obligation that is due within a year or less.

Assets should include anything that is liquid or could quickly convert to cash to cover your expenses.

Once you've performed this simple calculation, you're left with your working capital:

Funds that can easily be used to pay for your daily expenses.

For some companies, you may come to realize that your working capital is either negative or pretty close to it.

This is especially true if you think you're flush with cash, but have a large payment or expense coming up in the next several months.

Even if you plan ahead, it's smart to always have a strong reserve in place so you can deal with any financial emergency that pops up.

Plus, working capital can fluctuate throughout the year depending on your business model and other factors -- many of which lay outside your control.

Whether your customers are slow to pay invoices, leaving you cash-strapped, or you’d like to expand your company, this loan gives you flexible terms that allow you to spend the money how you see fit.

Common Uses

You can use the funds for any number of reasons, such as

  • payroll
  • a new marketing strategy
  • remodeling an existing location
  • expanding your current business line
  • purchasing equipment
  • ordering inventory
  • paying taxes
  • getting through slow seasons
  • or for unexpected financial emergencies.

Traditional banks tend to have extremely tough qualification guidelines for business loans and also restrict how the funds may be used.
With a working capital loan, however, you can rely on your own knowledge of your business to put the money to its best use.
These loans also prevent you from dipping into other assets that you may not want to touch.
For example, liquidating a personal retirement account to use for your business not only jeopardizes your personal future, it also dilutes the money you’ve accrued through early withdrawal fees and extra taxes.

Leveraging your personal assets is always risky, so you should look for unsecured loans when comparing small business capital.

Best Working Capital Loans

Short-Term Business Loan
$2,500 - $250,000
14% APR and up
3 - 18 months
Time to Funding
As little as 48 hours
Merchant Cash Advance
$2,500 - $250,000
1.14 - 1.18 factor rate
Deducted daily from merchant account
Time to Funding
As little as 7 days
Invoice Financing
50 - 90% of total invoices outstanding
About 3% + %/week outstanding
When customer pays invoice, you receive remaining 10 -50% (minus factor fee)
Time to Funding
As little as 24 hours

How It Works

Alternative business funding options can help avoid the restrictive red-tape of traditional financial institutions like banks and credit unions.

Online lenders are typically able to analyze your business more holistically, rather than focusing on a few specific criteria.
You may also notice more flexibility in terms of the age of your business.

While most banks only offer loans to businesses that are at least two years old, companies that are only a few months old can qualify for a working capital loan through certain lenders.

After all, who needs accessible capital more than a fresh startup?

Of course, more established small businesses can also successfully apply.

However your business is set up, there's a strong likelihood that you can find a lender who specializes in securing funding for borrowers like you.


There are a few specific features that make these loan options stand out for entrepreneurs and small business owners.

1) Short Loan Terms

One of the characteristics is that the repayment term is short, typically lasting less than one year.

You also have to make small daily payments rather than one lump sum each month.

This can either be good or bad for you, depending on how you run your business.

On the one hand, you get to quickly repay your debt so you can move onto other projects.

On the other hand, these loans aren’t meant to be used for long-term investment projects.

If you need capital for an extended period of time, you're better off finding another type of loan that affords you a longer repayment period.

The amount of money you can borrow may be limited.

Additionally, you’ll need to keep up with those payments each and every day to avoid fees.

You can often automate the process, but make sure you have the ongoing cash flow to fund those payments so you don't get behind on the loan.

2) Fast & Easy

A working capital loan gives you quick and convenient access to liquid cash.

If you look oat online lenders, the application process is quite simple, and you can receive funding in a matter of days.

Conversely, traditional banks and credit unions require substantial paperwork that can take weeks or even months to review.

You can avoid this hassle by applying for a working capital loan online.

3) Unsecured Loans

Another benefit is that these are unsecured loans.

That means you don’t have to use any collateral from your business or personal assets to back the loan.

It presents a much lower risk for you compared to using your equipment, home, or savings accounts as loan collateral.

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How Much Does It Cost?

The cost of a working capital loan varies depending on a number of factors.

However, you’ll generally see higher interest rates compared to traditional business loans because the loan is short-term and doesn’t require any collateral.

Just like any convenience, it comes at a price.

That’s why it’s important to make sure that your overall business model is profitable and that taking on an extra loan isn’t adding to your company’s financial burden.

Your small business should still be stable and forward-moving; if it’s not, an extra loan may not help you in the long run.

Depending on the lender, you may also encounter additional fees when taking out a working capital loan.

There may be an application fee, an origination fee, or closing costs.

Oftentimes, these amounts are deducted from the loan funds before they’re distributed to you.

If that’s the case, make sure you’re still borrowing enough money to cover your necessary expenses.

When comparing loan options, take a look at the total cost of the loan, not just the interest rate.

Fees and the length of repayment both impact how much you’ll actually end up paying over the course of the loan period.

Frequently Asked Questions

What is it

In short, it is any source of funding that’s desired or needed by a business owner for a specific business use. These are normally merchant cash advances, equipment financing/leasing, or business lines of credit. 

The funds typically go towards day to day operations, rather than long-term investments.

Business owners typically apply in order to bolster cash flow, make up for seasonal downturns, or compensate for outstanding invoices from customers.

Lenders understand that not all assets are liquid, and that’s where a working capital loan comes in —

You get a reliable source of capital to keep your business running even if other assets are tied up.

Is there a renewal fee?

Yes, there typically is a renewal fee when you take out a business loan for working capital

It’s comparable to a loan origination fee for a new loan; for example, if you rollover your loan into a longer term, it’s essentially like taking out a new loan, hence the renewal fee.

This annual fee is determined by the size of your loan.

The exact fee you’ll be charged depends on the lender you choose, so it’s important to review your loan terms before signing a loan agreement.

What can it be used for?

These funds can be used for a variety of purposes when it comes to your business’s daily operations.

In fact, most lenders have few restrictions on what you can use your loan funds for, as long as it’s business-related.

Some of the most common uses include inventory purchases, payroll, marketing expenses, business debt, and expansion via real estate purchase or renovations.

If you’re unsure of whether or not your intended purpose qualifies, talk to an experienced lender who can point you in the right direction.

How long does it typically get to be approved?

This is another variable that fluctuates from lender to lender.

Typically, however, you can expect a 48 to 72 hour turnaround from the time you submit your completed application.

This timeframe generally applies to online lenders.

Most traditional financial institutions like banks and credit unions take a much longer time evaluating business loan applications.

If you’re hoping to get access to funds quickly, choose an online lender to get approved and funded in as little as a few days.

Will you check my credit?

Yes, lenders always perform some degree of credit check as part of the application process.

But to help you rate-hunt effectively, you can usually pre-qualify for a loan with minimal paperwork and a soft credit pull.

Unlike a hard credit check, a soft pull doesn’t damage your credit score and never shows up on your credit report, allowing you to compare loan term offers without serious affecting your credit.

Lenders will require a hard pull to be done during the final stages of underwriting, but a single pull won’t dramatically impact your credit, and your rates and terms should already be finalized at this stage of the process.

What is the total cost?

The cost varies from person to person and business to business.

Influencing factors include:

  • type of financing
  • amount financed
  • length of the loan terms
  • your perceived credit risk
  • the perceived risk of your industry

When calculating the total cost of your loan, it’s important to evaluate a couple different terms.

Interest rate is a big one, and comparing APRs amongst lenders can help give you an idea of which is the better rate when other fees are taken into account.

But it’s also vital to review the length of the repayment period because APR is an annual calculation; a lower rate spread over a longer period may result in extra interest payments or fees.

A longer repayment term can help you better afford the daily or monthly payments, so the best offer really depends on the needs of your business.

Is there a minimum or maximum amount on how much you can borrow?

Commonly, these start as low as $5,000 and max out at $250,000.

The exact range varies by lender, and may be a deciding factor on which loan offer you choose.

Carefully calculate how much funding you actually need so that you can request the right amount.

It’s helpful to be as accurate as possible so that you don’t pay interest on funds you don’t need, or fall short because you didn’t request a large enough loan amount.

How long are the terms?

The vast majority of term loans are typically between two and five years; however, shorter terms are available subject to lenders terms or guidelines.

In fact, many lenders specialize in shorter terms, with repayment periods lasting for months rather than years.

How do I pay back my merchant cash advance?

Businesses often use merchant cash advances to inject working capital into their daily operations.

Your repayment method for a merchant cash advance specifically depends on your lender terms and agreement.

Most payments are either daily, weekly, or monthly and are processed through ACH.

Carefully review your loan agreement to make sure you fully understand the method and schedule for repaying your merchant cash advance.

How do I pay back my line of credit?

A line of credit is another way business owners can access the funds they seek. 

After making a withdrawal, your repayment process begins.

Payments are usually made monthly either through ACH or manual payment.

The monthly amount and length of time is based on the amount borrowed and the terms of the line of credit.

After a minimum payment has been satisfied, you can pay back the rest at your own pace.

There are no prepayment penalties so you can be as aggressive as you’d like.

Once you hit a certain threshold determined by your lender, you may be able to withdraw more funds from the remaining line of credit for your working capital needs.

How do I pay back my short term business loan?

Short term loans are typically repaid through ACH on weekly, biweekly, or monthly basis.

Some may even require daily payments.

Make sure you double check with your current lender on the specifics of your loan. 

Is there a pre-payment penalty?

There is usually not a pre-payment penalty on short term business loans, merchant cash advances, business credit cards, or lines of credit.

The specifics, particularly on traditional banking products, are subject to lender terms, in conjunction with your initial loan agreement.

Make sure you understand the details of your own loan agreement so you don’t accidentally incur any pre-payment penalties.

What are the rates?

Just like any other loan, interest rates are subject to a variety of factors.

They include both your personal and business credit, the industry you’re in, monthly sales volume, and other risk assessment factors.

During the application process, you’ll likely be asked to provide the lender with copies of your business’s financial statements.

This helps to determine your interest rate and other loan terms, such as maximum loan amount and repayment period.

Are there any associated fees?

Fees are subject to lender guidelines and are an important part of the loan selection process.

The most common fees you’ll find may include one or more of the following: origination fees, renewal fees

The loan APR typically reflects these fees so you can compare loan options.

What is the difference between fees and penalties?

Unlike fees, penalties result from violating the loan agreement.

Penalties may include:

  • Late payment or non-payment
  • Non-sufficient funds (meaning you didn’t have enough funds in your account to cover a payment)
  • Returned payment
  • Defaulting on the loan

Fees, on the other hand, are considered a cost of taking out the loan, rather than compensating for an action you’ve taken (or neglected to take).

Some examples of fees include the cost of loan origination, transactions, and other costs of using banking services.

You might also incur a fee depending on your payment method.

The amount you’ll be charged for both fees and penalties depends on your lender.

How To Qualify

Most online lenders don’t have a hard set list of criteria your business must meet; instead, they’ll look at a number of factors to determine the health of your company.

The basic requirements typically involve a minimum amount of time you’ve been in operation.

Some lenders only require that your company be in business for a few months, while others require at least two or three years of financial history.

There also might be a minimum amount of gross sales, either monthly or annually, to determine whether or not your company can handle the daily loan payments.  

The lender will also review your personal and business credit to help set your interest rate.

Obviously, the better your credit scores are, the better interest rate you’ll see.

Whether there is an exact minimum threshold depends on the lender.

Finally, they’ll take a look at your business’s financials to ensure its overall health and profitability.

How to Apply

When you’re ready to apply, you can count on a few things throughout the application process.

You’ll need to fill out the application itself, including personal identifying information like your contact information and a copy of your driver’s license.

Additionally, prepare to provide various business documents, including recent bank statements, profit and loss statements, tax statements, and proof of ownership.

You may also be asked for a voided business check to actually process the funding of the loan.

Before making a decision, explore all of your options to determine which is the best choice for your business.

Best Options for Working Capital

There are a few other financial products that can help you achieve the same goal, including:

  • Business credit cards
  • Business lines of credit
  • Short term business loan
  • Equipment financing
  • MCAs
  • Invoice financing
  • SBA loans
  • Personal loans for business
  • Startup business loans.