Best Working Capital Loans for Small Businesses in 2018

Working capital is your cash at bank and capital that can be easily converted into cash to fund your short term (< 12-months) small business needs. This article will cover the best working capital loans options available to you if you need a short-term cash advance to cover payroll, pay your rent or fund an immediate business opportunity.

Or do you need a speedy cash advance to cover a cash flow issue?  OnDeck are known for approving working capital loans fast. It takes 10 minutes to apply online and can usually provide access to your funds the next working day.

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Best Working Capital Loans for Small Business Summary Table

 Best for Small BusinessQualifying CriteriaLoan Terms 
fundbox-logo-one-of-the-best-small-business-loans-optionsWorking Capital
Businesses with a
less than 12-month
cash flow issue
Credit Score:
No check
Annual Rev:
NA
In Business:
3+ months
Limit:
< $100K
APR*
15-59%
Apply Now
ondeck-logo-one-of-the-best-small-business-loans-optionsFast loans
Apply online and
usually receive your
cash advance the
next working day
Credit Score:
500+
Annual Rev:
$100K+
In Business:
1+ years
Limit:
< $500K
APR*
14-40%
Apply Now
currency-logo-one-of-the-best-small-business-loansEquipment Financing
You can get a loan
specifically to fund
business equipment
Credit Score:
585+
Annual Rev:
$75K+
In Business:
6+ months
Limit:
< $2MM
APR*
6-24%
Apply Now
lending-club-logo-one-of-the-best-unsecured-loans-for-small-business-providersPeer-to-Peer Lending
Borrowers and investors
are connected via
an online marketplace
Credit Score:
600+
Annual Rev:
$50K+
In Business:
1+ years
Limit:
< $300K
APR*
10-36%
Apply Now
bluevine-logo-one-of-the-best-small-business-line-of-credit-providersInvoice Financing
You can get a cash
advance on your
unsettled invoices
Credit Score:
530+
Annual Rev:
$100K+
In Business:
3+ months
Limit:
< $5MM
APR*
15-68%
Apply Now
street-shares-logo-one-of-the-best-small-business-loans-optionsGovernment
Contract Financing

You can unlock funds
from government
invoices early
Credit Score:
600+
Annual Rev:
$100K+
In Business:
6+ months
Limit:
< $500K
APR*
12-25%
Apply Now
smartbiz-logo-one-of-the-best-small-business-loans-optionsSBA bank loan
Fast-tracking a low
interest SBA bank loan
Credit Score:
680+
Annual Rev:
15% downpayment
In Business:
2+ years
Limit:
< $5MM
APR*
6-9.5%
Apply Now
* The APR will depend on how each online lender perceives the risk involved.

What is Working Capital?

Working capital is your cash at bank plus capital that can be easily converted into cash within one year. This is also sometimes known as liquid capital. In accounting terms, this equates to how much money you have left to pay day-to-day small business costs after you’ve covered off your short-term business liabilities.

Current Assets – Current Liabilities = Working Capital (or Liquid Capital)

Current assets include hard cash as well as assets like inventory and accounts receivable, which you can easily convert into cash within one year. Current liabilities include all debts you will have to settle within a year.

Different Types of Working Capital Loan

Working capital loans provided by online lenders come in several different forms. What they all have in common is a faster approval process (days rather than months), easier qualification criteria and a higher APR than a traditional bank loan.

Unfortunately, most startups and small businesses can not qualify for a low-interest bank loan, even with the support of the SBA. This has opened the door to a new breed of innovative lenders, who seem to understand better how to balance risk against cost and speed up the whole process of getting working capital loans approved for solid businesses that fuel our economy.

Below, we cover the range of your working capital loans options. Of course, the other option available to you is to use your business credit to cover short-term needs. For the purpose of this article, we assume you already understand this option.

1. Working Capital Loans

A working capital loan is a cash advance from an online lender. It can either be a short-term loan for an agreed sum with a fixed repayment schedule and at an agreed APR (Annual Interest Rate). Or it can be a line-of-credit loan, which allows you to draw on it when you need it and settle it off without early repayment penalties as your cash flow improves.

image-of-fundbox-a-provider-of-fast-business-loans

Do I Qualify?

The criteria differs for each working capital lender. Let’s use Fundbox’s Line of Credit Loan as an example, you have to match or better the following criteria:

  • Credit score: Not required
  • Annual sales revenue: $25k +
  • Time in business: 3 months +

When is a Working Capital Loan a Good Option for my Small Business?

A working capital loan is a great option for covering short-term cash flow issues, which you know you can resolve within the net 12-months. However, a short-term loan is not a cost-effective way to cover longer term funding needs, like the purchase of equipment. This is because longer term loans generally have a lower APR.

Let’s take a look at the key pros and cons of a working capital loan:

Key Pros

  • A cash advance is made available much faster (1-3 days) than a traditional bank loan (2-3 months)
  • You can qualify even with a less than stellar credit score
  • It’s possible to qualify after only 3-months in business
  • You can usually save money by paying a line-of-credit loan back early

Key Cons

  • Short-term loans usually have a higher APR than long-term loans
  • You have to make more frequent repayments (i.e. monthly becomes weekly)
  • If you opt for a ‘term’ loan (rather than a ‘line-of-credit’) there is generally no reduction in the cost of the loan for repaying it earlier than the agreed term
Visit Fundbox

2. Equipment Financing

Equipment financing loans are designed specifically to provide funding to purchase equipment or tools. Generally, they are secured against the equipment that they are used to purchase without the need to provide a personal guarantee.

currency-logo-one-of-the-best-small-business-loans

Do I Qualify?

The criteria differs from one invoice financing lender to the next. Using Currency as an example, you have to match or better the following criteria:

  • Credit score: 585 +
  • Annual sales revenue: $75k +
  • Time in business: 6 months +

When is Equipment Financing a Good Option for my Small Business?

Equipment financing is a good option if your business needs to purchase expensive equipment to operate more efficiently or effectively. The loan is spread across the working life of your equipment, which spreads the upfront cost to match when the benefit of the equipment is received.

Let’s take a look at the key pros and cons of an equipment financing loan:

Key Pros

  • Equipment financing does not require a personal guarantee as it is usually secured against the equipment being funded
  • The APR is usually lower than a short-term loan because the equipment acts as collateral to secure the loan
  • Equipment financing only takes a few days to put in place

Key Cons

  • There is no benefit to be gained from paying the loan back early
  • You have to provide a lien over all of your business assets
Visit Currency

3. Peer-to-Peer Loans

Peer-to-peer (P2P) lending is an online lending model that matches investors with borrowers. The benefit of doing this is to help reduce the APR and/or ease the qualification criteria as the lender has a better understanding of your business type.

lending-club-logo-one-of-the-best-unsecured-loans-for-small-business-providers

Do I Qualify?

The criteria differs from one peer-to-peer lender to the next. Using Lending Club as our example, you have to match or better the following criteria:

  • Credit score: 585 +
  • Annual sales revenue: $75k +
  • Time in business: 6 months +

When is a Peer-to-Peer Loan a Good Option for my Small Business?

Peer-to-peer financing is a great way to refinance old debt at a lower APR (i.e. reduced cost). It can also be a good solution for medium term borrowing requirements (i.e. < 5-years) if you are perceived as a low risk and attract a low APR.

Let’s take a look at the key pros and cons of a peer-to-peer loan:

Key Pros

  • It usually takes less than one working week to get a peer-to-peer loan approved
  • Peer-to-peer loans generally have more competitive rates than short term loans
  • SBA loans require a lower credit score (600+) than SBA bank loans

Key Cons

  • SBA loans are offered for higher amounts
  • The APR is usually higher than that for an SBA bank loan
Visit Lending Club

4. Invoice Financing

Invoice financing allows you to get a cash advance on up to 95% of your unsettled invoices. And loan rates tend to be lower than general short term loans. This is because the outstanding invoices act as collateral against what you borrow.

bluevine-logo-one-of-the-best-small-business-line-of-credit-providers

Do I Qualify?

The criteria differs from one invoice financing lender to the next. Using BlueVine as our example, you have to match or better the following criteria:

  • Credit score: 530 +
  • Annual sales revenue: $100k +
  • Time in business: 3 months +

When is Invoice Financing a Good Option for my Small Business?

If you are a small business with large customers who pay slowly, invoice financing is an excellent way to stop your working capital from bottoming out. You get paid 85-95% of the invoice value on day one for invoices falling due up to 12-weeks later. When the invoice is settled in full, you receive the balance remaining less the lender’s fees.

Let’s take a look at the key pros and cons of an invoice financing loan:

Key Pros

  • It only takes 2-3 days to get approved and receive a cash advance
  • You can qualify even with a less than stellar credit score
  • Startups and early stage small businesses can qualify

Key Cons

  • If you are considered a bad credit risk, this will be reflected in your APR
  • When a customer fails to pay, you have to pay back the invoice plus a 3% late payment fee
Visit BlueVine

5. Government Contract Financing

Street Shares recently introduced an innovative new type of loan for small businesses who work on government contracts. They will loan you 80-90% of the contract value once it has been signed. After you’ve been paid, StreetShares pay over the balance of the government contract sum, less their costs.

image-of-street-shares-a-provider-of-fast-business-loans

Do I Qualify?

Street Shares are the only lender we are aware of that is currently providing government contract financing. To qualify you have to match or better the following criteria:

  • Credit score: 600 +
  • Annual sales revenue: $100k +
  • Time in business: 6 months +

When is Government Contract Financing a Good Option for my Small Business?

If government contracts make up a sizeable chunk of your sales revenue, government contract financing is a great way to stop late payment impacting your cash flow.

Let’s take a look at the key pros and cons of a government contracting loan:

Key Pros

  • It’s easy to qualify whether you are the lead contractor or a sub-contractor
  • Most startups and early stage small businesses can qualify
  • You can reduce the cost by paying the loan back early

Key Cons

  • If you are considered a bad credit risk, this will be reflected in your APR
  • You pay your loan via weekly payments taken from your bank account
Visit Street Shares

6. SBA Loans

SBA loans have the lowest APR of all the working capital loans available to you. They also have the longest terms available, which helps to reduce the monthly repayment. The reason banks lend at lower rates is because the Small Business Association (SBA) guarantees to pay 85% of the loan if you default.

Over the different types of SBA loan, the SBA 7a loan is the one that is designed for funding small business working capital or to refinance debt. You can borrow up to $5MM for a standard term of 10 years.

If you can plan 3-months ahead, have an excellent credit score and strong business performance, we recommend that you apply for an SBA loan.

smartbiz-logo-one-of-the-best-small-business-loans-options

Do I Qualify?

To qualify for an SBA loan, typically you need to fulfil the following criteria:

  • Credit score: 680 +
  • Be a profitable business with strong financials
  • Time in business: 2 years +
  • Loan downpayment: 10-20%

When is an SBA Loan a Good Option for my Small Business?

SBA loans are designed for prime borrowers who have an excellent personal credit score, strong business performance and funds to cover a deposit of 10-20% of the loan required. You also need to plan 1-3 months ahead as it takes this amount of time to process and approve a bank loan with an SBA guarantee.

Let’s take a look at the key pros and cons of an SBA loan:

Key Pros

  • Lowest APR of all the working capital loans options
  • The longest standard repayment terms (10-years)
  • Lower monthly payments as they are spread over more years

Key Cons

  • You have to be a prime borrower to qualify
  • Large loans will require a lot of collateral to secure the loan
  • It takes 2-3 months to process a loan application and get it approved

We recommend applying for an SBA loan with SmartBiz. They can help you to fast-track an SBA loan for up to $350K to get approved within a month.

Visit Smartbiz

The Juice Press – Working Capital Loans

This article has covered the range of working capital loans that are currently available to small businesses like yours. Each is suited to differing needs and circumstances, which hopefully helps you to find the right working capital loan for your small business.

For prime borrowers with time to plan ahead, the answer is simple, we suggest you apply for an SBA loan to get the lowest rates. We also recommend using Smartbiz to help you to fast-track the application process.

However, if you find yourself in a cash flow crisis and you need a fast loan now, we recommend you apply to OnDeck online. This only takes 10 minutes to complete and most working capital loans are approved and available within one business day.

Visit OnDeck