Best Working Capital Loans: A Comprehensive Guide
Since only about half of businesses survive in their first five years,¹ it’s crucial to have enough working capital to cover day-to-day operations. Business.org compares and reviews the best working capital loan options for your small business.
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April 2, 2020
9 min read
The loans max out at $10 million and can be used at the discretion of the business. The loan can be forgiven, however, if certain requirements are met. If no employee is compensated above $100,000 and at least 75% of the money goes to paying workers, the entire loan may be forgiven.
Loans that are not forgiven must be repaid in two years at a 0.5% interest rate after six months of interest deferment.
The only way to apply for these loans is through an SBA authorized lender. Applications open on Friday, April 3, and close on June 30. The application consists of a two-page form in addition to required documentation.
To see if you qualify, apply at a Paycheck Protection Program authorized lender.
20 Brands considered
12 Features compared
30 Days of research
21 Business owners talked to
As a small-business owner, you’re always looking for ways to invest in your company. Working capital loans can give your business a much-needed lifeline and keep your finances flowing smoothly.
If you need to cover day-to-day operations, keep your payroll up to date, or cope with seasonal lulls in cash flow, working capital loans could be a game changer for your business.
In this comprehensive guide, we’ll cover how a working capital loan functions and where to find the best lending options for your small business.
Compare the top working capital loan providers
Not sure which type of working capital loan to apply for? Business.org has your back. Here’s a quick comparison chart of our favorite working capital lenders.
| Company | Minimum credit score | Get a loan |
| Lendio | 550 | Apply now |
| Fundbox | 500 | Apply now |
| Kabbage | 540 | Apply now |
| Funding Circle | 620 | Apply now |
| OnDeck | 600 | Apply now |
Lendio: Best overall
- Quick approval process
- Several loan options
- Minimum credit score of only 550
- No options for startups
As the first-of-its-kind financial matchmaker service, Lendio can help catapult your business to success by offering a one-stop portal to a large pool of lenders—including some on our list.
Since you’re dealing with a large network of lenders, there’s a lot to consider when using Lendio. Lendio offers several types of working capital loans, including business lines of credit, merchant cash advances, and invoice financing.
Annual fees vary by lender, as do term lengths and possible collateral requirements. Bonus: Lendio doesn’t charge you any fees—all your interest and fees go straight to the lender.
Luckily for many, Lendio’s eligibility requirements are pretty lenient: Business owners just need to show a six-month track record, bring in a minimum of $10,000 per month, and have a credit score of 550 or higher.
Fundbox: Best for bad credit
- Speedy funding options
- Lenient requirements
- Low borrowing limit
- Limited bank account compatability
- Short repayment plans
Fundbox caught our eye thanks to its variety of loan options for all types of businesses. In fact, it prides itself on lending to woman-owned and minority-owned businesses.
To qualify for Fundbox, borrowers need to be in business for at least three months and have a minimum annual income of $50,000. During the approval process, Fundbox will review your bank account to determine your financial track record.
Fundbox requires a super-low minimum credit score, making this a top option for people with poor personal credit.
Fundbox’s business line of credit helps businesses cover emergency expenses. This flexible form of funding allows you to dip into your funds whenever you need and repay them within three months. It’s important to note that you pay interest for only the funds you use.
Fundbox doesn’t charge maintenance fees, origination fees, or termination fees. However, make sure to pay your weekly payment on time to avoid late fees.
Don’t qualify for a business loan due to your credit score? Get a personal loan instead.
Kabbage: Best for quick funding
- Fast loan approval
- Flexible lines of credit
- Easy and immediate access to funds
- High interest rates
Kabbage earns its spot on our list thanks to its quick and pain-free approval process. Kabbage Business owners can also benefit from its user-friendly platform.
Users also have funds at their fingertips thanks to the Kabbage Card, online dashboard, and mobile app. So if you need to pay a bill, secure inventory, or cover an unexpected expense, you can conveniently access funds whenever you need.
Kabbage gives back to the community by supporting several nonprofit organizations like the Boys & Girls Club, Dream a Dream, and the Atlanta Food Bank—just to name a few.
To access capital quickly and efficiently without an extensive documentation and application process, Kabbage offers ongoing access to working capital through its business line of credit. Although Kabbage is pretty lax on eligibility criteria, you must have been in business for at least a year.
A careful word of caution: we noticed some customer complaints of expensive monthly payments and high annual percentage rates, so if you’re looking for the cheapest option, Kabbage may not be your best bet.
Funding Circle: Best for customer service
- Low interest rates
- Fast turnaround
- Poor startup compatibility
- Strict requirements
As the first website to use the process of peer-to-peer lending for business funding in the UK, Funding Circle offers lightning-fast funding and transparent fees. In fact, its application takes a mere 10 (ish) minutes to fill out. As for funding, expect to get a decision within 24 hours and funds within five days.
Although this sounds like a sweet deal, Funding Circle is primarily for businesses that have been around for at least two years and have a good credit score.
Doesn’t sound like your situation? You can still apply—just keep in mind that you likely won’t get a good deal on a small-business loan. If your business is still in the startup phase, you can always find loans for startups.
Funding Circle offers exclusively secured loans, which means you’ll have to put up your own property or assets as a personal guarantee.
Funding Circle offers term loans from six months to five years with a borrowing limit of $500,000. Once approved, you’ll receive funding within as little as five days.
As for Funding Circle’s rates, they start at a competitive 4.99%. And fortunately for you, there are no prepayment penalties.
Funding Circle boasts an A+ BBB rating and a 4.2 out of 5 TrustScore on Trustpilot—mostly due to its solid customer service and quick turnaround times.2, 3
OnDeck: Most lenient requirements
- Quick funding
- Loyalty benefits
- Strong customer service
- High interest rates
- Frequent payments
With quick turnaround times and lenient qualification requirements, OnDeck is a stellar option if you have poor personal credit but lack the time to improve it. To qualify with OnDeck, your company only needs to have been in business for a year and make $100,000 in annual revenue.
You also need a personal credit score of 600 or higher. Unlike other lenders and lending platforms on our list, OnDeck offers flexibility by providing both term loans and lines of credit. That’s where it really shines.
Although fees vary depending on cash flow and credit score, the lower annual interest rate is 9.99%. If you’re a repeat customer, you’ll have access to several loyalty benefits, including larger loan amounts, lower rates, and longer terms.
Browse hundreds of loan options, custom-tailored to your business and budget needs, from a single, simple platform.
Working capital loan FAQs
What is a working capital loan?
Every business owner knows that it takes money to make money. Even if your current cash flow can keep your business out of the red, you may need a little outside financing help to get to the next level.
Fortunately, with the help of a working capital loan, your company can have more flexibility to cover day-to-day expenses, survive seasonal dips in revenue, and keep your payroll up to date.
The immediate benefit of a working capital loan is how easy it is to obtain. Plus, it allows business owners to bridge the gaps in working capital expenditures.
In addition to covering day-to-day expenses, the extra cash in your pocket could help you invest in the following opportunities:
- Move or expand
- Buy inventory
- Hire talent
- Refinance debt
- Start a marketing campaign
Since working capital loans typically have shorter lifespans, you’re expected to pay them fairly quickly. And keep in mind that these loans are intended to fund immediate or emergency needs rather than long-term goals.
What are the different types of working capital loans?
Each of these working capital loan options fits a different, immediate business need. See which one works best for you.
Business lines of credit and credit cards
Although lines of credit and credit cards share many similarities, there are some key differences. Perhaps the clearest differentiation between business lines of credit and credit cards are the length of their respective repayment periods and spending limits.
A business line of credit, also known as a revolving line of credit, allows borrowers to access cash with lower APRs. Most of the time, business owners use this type of loan for short-term working capital needs, which includes inventory purchases, equipment costs, or company payroll.
As we mentioned above, you pay interest on only what you draw. Unfortunately, however, a business line of credit won’t allow you to benefit from the same bonus rewards that credit cards come with. That means no travel miles or cash back.
Credit cards are pretty cut and dry. They allow the holder to purchase goods with a specific percentage of a spending limit—which is typically lower than a business line of credit.
What is a merchant cash advance?
Does your business make a significant portion of your income through credit card sales? You could qualify for a merchant cash advance. Here’s how it works: after you’re approved and the lump sum advance is funded to your account, you’ll pay a percentage of your daily credit and debit card sales.
Merchant cash advances (MCAs) not only help with working capital, but they can also be used to pay off debts, purchase inventory, and more. MCAs are also suitable for borrowers who have low personal credit, limited business history, and little to no collateral.
During the approval process, the MCA company will look at your credit card processing statements to see the volume of sales your business is making on a daily basis.
What is invoice financing?
If your small business deals with invoices, you likely understand how frustrating it can be if your customer doesn’t pay on time. Regardless of the circumstances, an unpaid invoice can hurt your business. And chasing down payment is a messy process.
Fortunately, there’s a loan to help you work through this tough situation. Invoice financing, otherwise known as accounts receivable, could give your business a more reliable and predictable cash flow, which will help you sleep better at night.
However, invoice financing may cost you in the long run. Here’s a quick rundown of the typical cost structure:
If you have a $100,000 invoice, your financing company may advance you $85,000 while holding the rest of the amount in reserve. Once your customer pays the invoice, the financing company will take a 3% processing fee and a factoring fee of 1% per week before giving you the leftover amount.
Working capital loans for business owners with bad credit
Do you have bad personal credit? Lucky for you, your credit score isn’t the end-all-be-all of a working capital loan application.
There are several different loans for business owners with bad credit—some of which are on this list. In fact, all but Funding Circle can help you secure a working capital loan if you don’t have strong credit.
You can get one free credit report from each of the three major credit bureaus: TransUnion, Equifax, and Experian.
Before making a rash decision, it’s important to compare your options and find the best financing solution that fits your business needs.
Whether you decide to move forward with a working capital loan or wait until you improve your credit score, make sure to create a plan for handling a cash crunch in the future.
The takeaway
Regardless of your industry, working capital is fuel for your business. And overall, we think Lendio is the best choice for most businesses who need a working capital loan. However, your own unique needs and preferences as a small-business owner will influence which lender you’ll work with.
Do you have experience with a working capital loan of any kind? We’d love to hear your story in the comments below!
Whether you decide to move forward with a working capital loan or wait until you improve your credit score, make sure to create a plan for handling a cash crunch in the future.
Estimate the true cost of your working capital loan with our business loan calculator.
Sources
- SBA, “Small Business Facts”
- Better Business Bureau, “Funding Circle USA, Inc”
- Trustpilot, “Funding Circle”
