How to get a working capital loan
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.
When is a working capital loan a good idea?
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.
Types of working capital loans
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.
Compare small-business loans
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.