Working capital loans can help you pay operational costs, such as rent, payroll and debt payments. You shouldn’t use them for long-term investments, such as real estate.
Banks offer the lowest financing rates on these loans, so if you own an established business with strong cash flow, you may want to start with one. But if the bank says no or you need cash fast, you can turn to alternative lenders. Many working capital loans can be used for multiple business needs, so consider how you plan to use the proceeds before you apply.
Working capital loans for everyday needs
The term “working capital” can encompass virtually every facet of your finances, but ultimately you need it to, well, keep your company working. That could include coping with seasonal dips in revenue, covering maintenance costs, keeping your payroll up to date or managing your inventory.
If your personal credit score is at least 500: If your business makes at least $50,000 in annual revenue, Kabbage offers quick working capital loans to help keep it afloat. That convenience does come with annual percentage rates higher than some other online lenders charge.
If your business makes $100,000 or more per year, a term loan from OnDeck is another option. However, note that bad-credit borrowers will likely receive APRs on the high end of the lender’s scale.
If your personal credit score is more than 600: StreetShares lends to businesses that are at least a year old and have earned at least $25,000, making it a good fit for companies that are still building revenue. However, you can only qualify for up to 20% of your annual revenue, so it might not be a great option if you’re looking for a larger lump sum.
Working capital loans for large purchases
If you need a large sum to cover an equipment purchase or minor expansion project, focus your search on lenders that offer the lowest APRs. SmartBiz provides U.S. Small Business Administration loans with APRs from 8% to 8.7%, the cream of the lending crop. To qualify, your business needs to have been in operation for two or more years and make at least $50,000 in annual revenue. You also need a personal credit score of at least 600 or 650, depending on the loan size.
SmartBiz’s application can be lengthy and complicated due to additional SBA requirements. If you need quicker access to cash for large purchases, you can consider Funding Circle. Its APRs start at 7% but range up to 36%. You need at least two years in business and a personal credit score of at least 620 to qualify, but there is no minimum annual revenue requirement.
If your credit is subpar but you still need a lump sum, OnDeck considers your business’s cash flow over your credit. You need a personal credit score of at least 500 and at least $100,000 in annual revenue to qualify for funding from OnDeck, but the lower your credit score, the higher your rate will likely be.
Working capital loans if you have unpaid customer invoices
Any company that works in the business-to-business sector will face gaps in cash flow, namely when clients pay 30, 60 or even 90 days late. To help keep your business running while the check’s in the mail, consider invoice financing, a financing method in which the lender fronts you the money from outstanding invoices. It’s a good option when you’re in a pinch, although high APRs do make these services a pricey pick.
As long as the companies that owe you money have strong credit, BlueVine can front you cash even if your business is new and you have poor credit. The lender requires a minimum personal credit score of only 530, but your business must have at least $120,000 in annual revenue to qualify.
If you need fast financing, Fundbox can get you cash in one to three business days. It doesn’t require a minimum personal credit score or minimum annual revenue. You do, however, need to have compatible accounting software to access Fundbox.
Working capital loans: summary
Evaluate small-business loans carefully
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 evaluate other loans, you can go to NerdWallet’s small-business loan tool. NerdWallet’s list of lenders is based on factors including market scope, customer experience and lender trustworthiness.
Jackie Zimmermann is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org. Twitter: @jackie_zm.
Updated Jan. 6, 2017.