Working Capital Loans For Small Business


You will want to understand the requirements and to review your credit report before you apply for a working capital loan.


When you are ready to launch a new product or service, getting it in front of as many people as you can is vital if you want to notice positive results.

Late Invoices

Depending on your industry, you could be forced to wait up to 90 days to receive payment for your services.


Growing your business can mean hiring additional staff, but if you don’t have the needed funds to cover the additional payroll expenses, it’s easy to feel stuck.

Benefits of Working Capital

  • Pay Expenses – Having working capital means you can pay all your expenses on time – this can be anything from a contract to an employee’s salary.
  • Pay Debt – Most businesses have debt obligations, you need working capital to service this debt – not having enough can result in defaulting.
  • Opportunities – Having working capital on hand will help you take advantage of opportunities that arise in the normal course of business.
  • Investment – Working capital can help you invest in excess capacity should seasonal changes in demand occur.
  • Business Health – Having working capital on-hand is an indication of the health of your business. The more you have, the easier it will be for you to get affordable financing. Those who want to invest in your business will also look favorably upon a large amount of working capital.

Any small business owner will tell you how important it is to have cash on hand to deal with operating expenses, both expected and unforeseen. However, sometimes there are times where you find yourself running short of net working capital. If you find yourself upside down on your working capital ratio, then you’ll want to consider working capital financing. There are a few different ways to get the working capital you need, and a few reasons why you might want to increase the amount of net operating capital you have.

If you are ready to grow your small business, then you are probably considering whether a working capital loan will help you reach your goals. With a working capital loan, you can cover the operational costs of your business until you see a return on your investment.

Working Capital Loans For Small Business

Some business owners, however, decide to get this type of loan without taking the time to understand how it works, which is a mistake that you won’t want to repeat. Before moving forward, always put in the effort to know what you can expect, and you won’t need to run into any problems along the way. You are now going to learn about the top ways to use a working capital loan, and deciding how to proceed will be easy.

Understanding Working Capital Loans


You will want to understand the requirements and to review your credit report before you apply for a working capital loan. If you have a credit score of at least 500, you will need to generate $50,000 of annual profit when you want lenders to consider your application.

The requirements become a little more flexible if you have a credit score of at least 600. In that case, you will only need to bring in $25,000 each year. So if your credit rating is decent and if your business is making a consistent profit, you won’t have any problems getting an approval.

Additionally, there are other requirements that you need to consider when looking into a working capital loan for a small business. Different lenders will have different requirements. These can include the different types of paperwork you’ll need to submit, or the number of years your business has been in operation. Moreover, some lenders will only work with certain types of businesses or will refuse to work with certain types of businesses.

Therefore, it’s important to consider the different requirements for the lenders you are considering asking for a working capital loan. Failure to understand the requirements can mean wasted time, wasted money, and wasted effort.


When you are ready to launch a new product or service, getting it in front of as many people as you can is vital if you want to notice positive results. But as the owner of a small business, you might not have enough funds for an effective marketing campaign.

This situation can be stressful for anyone, especially when you know that your upcoming product or service has potential. You can combat the problem by using a working capital loan to advertise your product to your target audience. After your marketing camping becomes profitable, you can use a portion of the proceeds to repay your debt.

Working Capital Loans For Small Business

Marketing is one of the most important aspects of making any small business successful. Before people can buy your goods or hire your services, they need to know you exist. Unfortunately, marketing is often the first place that budget cuts look to when cash is short. However, this can be self-defeating, as the lack of marketing dollars means that you likely won’t be able to attract the customers you need to shore up your budget. The result is a downward spiral that can be the death knell for many small businesses.

Some small business owners may be hesitant to seek a working capital loan for their small business for the purposes of marketing. However, banks and lenders understand the importance of marketing. After all, it was their marketing that brought you to them to ask for a loan. A new marketing campaign can be just the thing to help a small business find its feet and generate the momentum needed to grow, so don’t be shy or feel bad about requesting a small business working capital loan so you can keep your marketing going.

Late Invoices

In a perfect world, people would always pay their invoices on time, and you would not need to worry about tracking down your past customers to collect your payments. But depending on your industry, you could be forced to wait up to 90 days to receive payment for your services.

If you work on large projects, one late payment could be enough to harm your budget, making it difficult for you to manage your expenses. After all, employees and contractors need to be paid. Moreover, small businesses usually operate as a community network, so when one large invoice goes unpaid there’s a risk that other community members will also not have the cash on hand to cover their expenses. Seeking a small business working capital loan to help cover late invoices gives you the ability to cover your costs so you can maintain good relationships with your supplies, contractors, and employees.

Late invoice payments also deny you the ability to take advantage of opportunities when they present themselves. Any small business owner can tell you that having working capital on hand to take on a new project, add merchandise, increase production, buy equipment, or cover other expenses a new project entails can mean the difference between growing and treading water. When a customer opts not to pay an invoice on time, you can use a working capital loan to pay your bills until your funds are transferred.


Growing your business can mean adding another department or hiring additional staff, but if you don’t have the needed funds to cover the additional payroll expenses, it’s easy to feel stuck. With a working capital loan, you can afford to hire employees who will get the job done right, allowing you to get out of a tight spot. But it’s important you determine the profitability of your expansion before you sign any paperwork. You will want to have enough income to repay the loan and to reinvest in your small business.

After all, in today’s knowledge and skill driven economy finding the right employees can mean the difference between success and failure for a small business. The best way to attract the best labor is to offer the best wages. However, offering the best wages trades off with your budget, leaving small business owners in a tight spot. A working capital loan gives you the resources you need to help attract the right talent so your business can thrive. This might take the form of a talented new marketer to attract more customers, or a supervisor to help keep productivity at its highest possible levels. No matter what kind of business you run, hiring the right people (and having the money to pay them the agreed rate) is essential to a small business’s success.

There’s another reason that you might consider a working capital loan so that you can maintain or grow your payroll. Employee morale is crucial to the success of any business, and employees work harder and better when they are confident their paycheck will be coming on time. A failure to pay on time can not only result in disgruntled employees, but can also give your business a bad reputation, making others less likely to apply for your job openings. This denies you access to the talent and skills needed to grow your business, putting you on risky ground.

Market Fluctuation

Anyone who has been in business for more than a few months knows that the market tends to fluctuate. Although you can predict your income over an extended period, your short-term results can be unpredictable. A small business working capital loan gives you the resources you need to make sure you can weather these rough patches and keep growing. Market fluctuations can be unpredictable, and the only way to be sure you can safely deal with them is by having the cash on hand to keep running.

Market fluctuations can happen for any number of reasons. Natural disasters, terrorist attacks, events in unrelated sectors, and geo-political events around the world can all suddenly alter your business environment. If the price of gas or electricity suddenly spikes, many different sectors can find themselves facing a cash crunch. The worst option is to tell a client you can’t execute their project, as this gives your clients the impression that you aren’t prepared to handle their business and can’t always be relied on. A working capital loan can give you the cash you need to say yes to your clients, no matter what’s happening in the broader economy.

If your sales decrease for a month or more, keeping your business alive can be difficult, and some companies fail as a result. If you need some extra cash to hold you over until your sales pick up, a working capital loan is a viable solution.

Working Capital Loans With No Credit Check

There are very few lenders that will offer you a working capital loan with no credit check, but this doesn’t mean that you can’t avoid hurting your credit score when you apply for a working capital loan. When you apply for financing, most lenders perform a hard credit check – this records an inquiry on your account and ends up reducing your credit score in the near term.

But certain lenders will perform a ‘soft credit check’ on your account. A soft check isn’t as in-depth as a hard one – it is a surface-level credit check. It also means that you won’t end up having an inquiry on your account – your score will not be damaged. This is the best option for those who want to avoid a credit check. Although it must be said: it won’t prevent lenders from being able to see your basic credit history.

Working Capital Loans For Bad Credit

Obtaining a working capital loan with bad credit can be a complicated process if you don’t know how to approach the application. Several lenders will provide working capital loans to individuals with bad credit. Many online lenders are more likely to extend capital to individuals with poor credit history. Peer-to-peer lenders are also more likely to lend working capital to people with poor credit, although typically at a high-interest rate. The lower your credit score, the more likely you will be offered a higher interest rate. For this reason, we suggest you use the following methods to better prepare yourself for an application:

Pay Down Debt

If a lender wants to look at your personal credit score, the amount of revolving debt you have will play a significant factor in the decision. Paying down your credit card debt is one of the easiest ways to see a sharp improvement in your score. Lenders typically report to credit agencies every four weeks!

Credit Repair

Credit repair companies can help you make quick improvements to your score by getting specific items removed. Make sure to work with a credit repair company that only makes you pay AFTER they get your results!

Types of Working Capital Loans

Small businesses have a few different options when it comes to working capital loans. We’ll list several here in an attempt to cover different industries and so you can get a good idea of the different options available to businesses who are trying to figure out how to find working capital.

Term Loan

The first option for small businesses having problems figuring out how to calculate their working capital in a way that works in their favor is a term loan. A term loan is a basic loan, you are given money by a lender and make payments over an agreed upon period of time. The lender charges you interest to make a profit on the loan.

Term loans have their pros and cons, like all other lending sources. They’re a good option for businesses that have strong forecasting powers and those that have been established for at least two years. Moreover, there are many different small business funding sources these days. The traditional brick and mortar bank is still an option, and many small business owners prefer working with a local bank or bank branch for their working capital needs.

Another option for term loans for small businesses is online lenders. These lenders might be direct lenders that specialize in a certain kind of loan, or in many different kind of loans. Additionally, there are peer-to-peer lending networks consisting of a network of individuals who put money into loans as an investment strategy. These networks are more likely to give a greater amount of weight to your overall business plan and business numbers rather than focusing more on your credit score, which is different from banks and direct online lenders.

Cash Advance

Another option for working capital is a cash advance. A cash advance is similar to a term loan, but the term is very short. It’s usually used to cover things like payroll while you are waiting on a large invoice to get paid. Cash advances can be used for other things too. Retail stores might use a cash advance to acquire new merchandise and then pay back the cash advance loan out of the profits or sales from that item.

Cash advances are good options for those small businesses that need a short term cash influx to cover a shortcoming or to take advantage of an unforeseen opportunity. The interest rates are usually higher than term loans or other working capital solutions that small businesses have access to. However, many of those other options involve planning, so in truly unforeseen circumstances a cash advance can be a good option.

Invoice Factoring

Invoice factoring is another option for many difference businesses. Invoice factoring involves selling your outstanding invoices to a company. The company pays you a large percentage of the invoice up front, and then pays the rest when your customer or client pays the invoice, minus a discount fee. Most factoring companies will pay up to 80% of an invoice upfront, and many of them will pay as much as 95% of the invoice.

Invoice factoring has the advantage of knowing that whenever you do work and send an invoice you get paid right away. This can allow you to offer your clients favorable terms on your work while ensuring that you have the working capital on hand to take on the next big project. Moreover, there are many factoring companies that specialize in particular industries, and they can offer a number of valuable services in addition to invoice factoring.

However, many factoring companies have requirements that you factor a certain percentage or amount of your invoices through them. Additionally, clients and customers pay the invoice factoring company, so some small business owners worry that getting a bill from someone else will seem sketchy or off putting. Finally, you can only get money from invoices you send, so if you need working capital to generate more clients, then invoice factoring isn’t structured in a way that suits your needs.

Revolving Line of Credit

Many small business owners utilize a revolving line of credit to help with working capital issues. A revolving line of credit is a credit card, which allows you to make purchases that you need in order to keep your business going.
You can use your revolving line of credit to buy inventory, pay suppliers, pay for raw materials, hire contractors, or anything else that you can use a credit card for. As a result, a revolving line of credit offers tremendous flexibility when it comes to covering your working capital needs.

Lines of credit usually offer better interest rates than cash advances. Moreover, because you are spending directly from the line of credit, you only have to pay back what you spend. This makes them different from term loans because you can keep the line open, spend on it, make payments and pay it back, and then spend on it again. Moreover, you only have to spend what you need, rather than taking out a set amount for a term loan. Lines of credit also have the advantage of being offered by a number of institutions. As a result, there’s a lot of competition in the industry. One advantage of this competition is that the lines of credit have various rewards that you can use to help your small business or to give yourself a bit of a treat. Some of the rewards might include cash-back offers, giving you from 1-5% off of everything you buy with the line of credit. Other lines of credit offer miles and points systems that you can redeem for airline tickets and other commodities and perks.

However, in order to obtain a line of credit you need to have a good credit score. This can be true of both the small business owner and the business itself. Therefore, some people will find themselves unable to obtain a line of credit. Additionally, sometimes a small business can get a line of credit, but not one that is sufficient to cover their working capital needs. Therefore, some businesses will not be able to use a line of credit as a solution to their working capital equation.

Purchase Order Advance

The last type of working capital loan we’ll talk about is a purchase order advance. This is similar to invoice factoring, but instead of selling the receivable, you receive funding to cover a purchase order you get from a customer or client. In addition to being focused on a different part of the business process, a purchase order advance also differs in that the small business pays the loan back itself, rather than having a customer or client pay a different company, which is what happens with invoice factoring.

Purchase order advances are most useful to manufacturing companies. These companies can use the advance to buy the raw materials or pay for the labor needed to complete the purchase order. This allows small businesses to get the extra capacity they need to cover large projects. Moreover, access to more capital ahead of an order means that you can buy supplies and raw materials in bulk, lowering your overall costs and increasing your profit margin.

Best Working Capital Loans

The best working capital loans will depend on the type of finance you’re looking for. It’s important to make sure you choose the best kind of financing for your business – not doing so can have substantial financial implications. Below are some factors you should be looking for when deciding on the best working capital loans for your business.

Lender Reputation

The reputation of your lender will be critical in determining which is the best working capital loan. Head to Consumer Affairs and look up past reviews of the lender that you’re working with – you should only work with lenders who have good customer satisfaction scores.

Interest Rate

The interest rate is the number one determinant of the cost of the loan. The best working capital loans will be ones that are offered at an affordable rate for your business. Never agree to an interest rate that falls outside of your budget.

Other Fees

Often lenders will advertise a low interest rate to entice borrowers into applying for their finance. But many will tack on extra fees, such as origination fees and other charges. This will raise the total cost of the loan to much higher than you may have anticipated. Make sure to ask your lender for a full value of the loan – it’s a much better way to determine if you can afford the loan.


If you value flexibility in your financing, the best loans for your business will be different than for those who don’t need flexible funding. For example, a traditional term loan is a bad form of business loan for those who need flexibility. The best working capital loans for people who need flexibility will typically be business lines of credit.

Final Thoughts

Running a small business isn’t easy, but it is rewarding. They say that if you love what you do, then you’ll never work a day in your life. Most small business owners agree with this sentiment and take it to heart. Don’t let your dreams of running your own small business and enjoying what you do every day go down the drain because of forces beyond your control like market fluctuations or late payments.

Moreover, small businesses are the pillars of our communities. When your small business suffers, so does the community around you. Less customers in your retail store likely means less customers for the restaurant next door. Fewer clients means that your suppliers and sales staff make less money. A small business working capital loan can be just the thing you need to help not only your business, but your whole community to grow and thrive.

Because lenders will look at your annual profitability before allowing you to get a working capital loan, this option is not for those who have just started a small business. Working capital loans are only for people who need to cover short-term expenses until they can improve their profitability. When you need to cover payroll or marketing expenses, a working capital loan is likely the solution for which you have been searching. Not only will it help you grow your business, but it will also help you stay ahead of your bills during the slow months. You owe it to yourself, your employees, and your community to keep your small business going, so if you’re facing a cash crunch be sure to check out the working capital loans in your area.

Last Updated: May 10, 2018