Online lenders offer working capital loans to finance short-term business expenses.
Working capital loans are short-term financing that can help your business cover operational costs, such as rent, payroll or restocking inventory. The loans carry short repayment terms and are not typically used for long-term investments, such as real estate or equipment. Banks offer the lowest annual percentage rates on working capital loans, but they also have tougher credit scores and revenue requirements than online lenders. If you don’t qualify for a bank loan or if you need fast working capital, you can turn to online lenders for small-business loans.
Summary of Best Working Capital Loans for 2021
How to get a working capital loans
Working capital loans are available from a variety of sources, including online lenders, banks and credit unions. Banks and credit unions are options for established businesses with collateral and strong credit, while online lenders may provide options for borrowers with spotty credit histories. Online or alternative lenders will typically charge higher APRs than banks and credit unions.
When is a working capital loan a good idea?
Working capital financing may be a smart move when your business needs cash to cover day-to-day operational expenses. The loans can provide a lifeline for seasonal businesses that experience a dip in sales, like landscapers, ski resorts and retailers. This is a short-term loan to solve a temporary slowdown, so it isn’t the best solution for business expansion or financing a long-term investment. If you need to borrow for those reasons, consider a long-term business loan instead.
Types of WC loans
Term loans: While term loans are commonly used for financing an expansion, they can also be used for short-term WC. Term loans provide a sum of cash upfront that is repaid over a set period of time with fixed, equal payments. Business lines of credit: A line of credit provides more flexibility than term loans, as you get access to funds up to a credit limit and only pay interest on what you’ve borrowed. You can draw and repay funds as often as you’d like, as long as you make payments and don’t exceed your limit. SBA loans: These loans are guaranteed by the U.S. Small Business Administration and issued through participating banks, credit unions and online lenders. SBA loans provide up to $5 million for WC, expansion or equipment purchases. Invoice factoring: If you have customers with unpaid invoices, this type of financing lets you turn the invoices into fast working capital. The factoring company buys your invoices for an upfront payment (minus a fee), and it gets paid when it collects from your customer.
Compare small-business loans
When looking for a working capital loan, it’s important to compare all of your options based on APR, which represents the true cost of the loan, including all fees.
To recap our selections…
Best WC Loans for 2021
- OnDeck – Online term loan: Best for Working capital for everyday needs
- Credibility Capital – Online term loan: Best for Working capital for large purchases
- BlueVine – Invoice factoring: Best for Working capital for unpaid customer invoices
Can also read: Mortgage Broker: What to Ask Before Using One