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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 score 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.
LOOKING FOR CORONAVIRUS RELIEF LOANS?
A new relief bill passed in late December revives Paycheck Protection Program loans for small businesses, independent contractors and the self employed hard hit by the pandemic.
Our pick for
Working capital for everyday needs
9.00 - 99.00%
600
Pros
Cons
Qualifications:
Our pick for
Working capital for large purchases
6.99 - 24.99%
650
Pros
Cons
Qualifications:
Our pick for
Working capital for unpaid customer invoices
Companies that work in the business-to-business sector will face gaps in cash flow. To help keep your business running while the check’s in the mail, consider invoice factoring or invoice financing.
15.00 - 68.00%
530
Pros
Cons
Qualifications:
| Lender | Best For | Est. APR | Min. Credit Score | Next Steps |
|---|---|---|---|---|
OnDeck - Online term loan | Best for Working capital for everyday needs | 9.00 - 99.00% | 600 | See Your Loan Options
with Fundera by Nerdwallet |
Credibility Capital - Online term loan | Best for Working capital for large purchases | 6.99 - 24.99% | 650 | See Your Loan Options
with Fundera by Nerdwallet |
BlueVine - Invoice factoring | Best for Working capital for unpaid customer invoices | 15.00 - 68.00% | 530 | See Your Loan Options
with Fundera by Nerdwallet |
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.
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.
Term loans: While term loans are commonly used for financing an expansion, they can also be used for short-term working capital. 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 working capital, 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.
» MORE: Compare business loan options
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.
Evaluate other loans using NerdWallet’s small-business loan tool. NerdWallet’s list of lenders is based on factors including market scope, customer experience and lender trustworthiness.
To recap our selections...