Working Capital Loans for Small Businesses: The Best Options of 2019

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What Are Working Capital Loans

Working capital loans are flexible financing tools for small businesses to help pay for daily expenses, payroll, rent and more. Financing your needs with a working capital loan can help your business grow and expand if utilized properly.

We'd highly recommend obtaining a loan from a traditional lender like a bank, since it usually offers the lowest rates and larger loans. However, a business with a weaker personal credit score or lower cash flow would be better suited to try its luck with an online lender that charges higher rates for smaller loans.

There isn't a universal distinction that is officially recognized between working capital loans and term loans or other types of financing. However, working capital loans are generally seen as an umbrella term for short-term financing, which includes short-term loans, smaller business lines of credits, merchant cash advances and invoice financing.

Working Capital Loan Pros:

  • Fast financing for those who need it
  • Plenty of options for those with bad credit scores
  • Can help plug cash flow gaps or seasonalities

Working Capital Loan Cons:

  • Not great for irregular, large purchases
  • The best rates and terms are reserved only for those with strong personal credit scores or large annual revenues
  • Terms are usually short, which means higher monthly or weekly payments

Working Capital Loans for Bad Credit

Kabbage
Kabbage
Kabbage

Consider this if you want a line of credit.

Financing Cost 20.00% - 80.00% APR
Loan Amount Range $2,000 - $250,000
Loan Term Range 6 or 12 months
Repayment Monthly
Funding Time As fast as same day

Why we like it: Kabbage's business line of credit is a great option for those with poor credit scores, as it doesn't require a minimum credit score to apply. Instead, it processes applicants based on other factors such as cash flow and age of business.

The most unique thing about Kabbage is its Kabbage card, which almost acts like a credit card and allows for easy access to an approved line of credit. Business lines of credit with other lenders may require several business days to process withdrawals.

Applicants need to have been in business for 12 months, and they need to have demonstrated $50,000 in annual revenue.

Drawbacks: APRs can range from 20.00% - 80.00%, which makes Kabbage one of the most expensive lenders in the market. Its leniency in application requirements is clearly reflected in its comparatively higher rates. Borrowers looking for more competitive rates who have stronger credit scores should look elsewhere.

Highlights:

  • No minimum personal credit score required
  • Lines of credit can vary from $2,000 - $250,000
  • APRs range from 20.00% - 80.00%
Credibly
Credibly
Credibly

Consider this if you want short-term loan or merchant cash advance.

Financing Cost 1.15x - 1.49x Factor rate
Loan Amount Range $5,000 - $400,000
Loan Term Range 6 - 17 months
Repayment Daily or weekly
Funding Time As fast as 48 hours

Why we like it: Credibly is our top recommendation for those with lower credit scores who are also looking for short-term loans or merchant cash advance financing. Credibly is one of the more lenient lenders in the market, as it only requires a credit score of 500 for its working capital loan.

We like Credibly because of its relative leniency and its lower fees compared to similar lenders. Credibly lists its rates for its working capital loan as a 1.15x - 1.49x factor rate. Keep in mind that these are not the same as APRs and likely don't include all the fees you'd be responsible for, which will vary from borrower to borrower.

Drawbacks: Credibly's loans are extremely short with a maximum term of 17 months. Also, since Credibly uses factor rates rather than APR's or interest rates to price their loans, it may be tough to compare their loans to loans from other lenders.

Highlights:

  • Personal credit score of 500 required
  • Loans range from $5,000 - $400,000
  • Rates range from 1.15x - 1.49x in factor rates

Working Capital Loans for Good Credit

Borrowers with good personal credit will benefit from a wider selection of lenders and products. A credit score above 500 but below 680 will still likely keep you limited to online lenders, but the rates charged for borrowers with stronger profiles are far better.

StreetShares
StreetShares
StreetShares

Consider this if you want flexible financing.

Financing Cost 8.00% - 39.99% APR
Loan Amount Range $2,000 - $200,000
Loan Term Range 3 - 36 months
Repayment Weekly
Funding Time As fast as same day

Why we like it: StreetShares is an excellent lender for those looking for flexible forms of financing, as it offers a business line of credit, a term loan and contract financing. It offers lower rates and more financing options compared to other online lenders while still offering extremely fast application processing.

StreetShares leverages a P2P business model where it pools money from individual or institutional investors to provide loans for borrowers. It utilizes a similar model to Lending Club, but we'd still recommend StreetShares for those with fair credit, as StreetShares is a bit more transparent about its rates.

Drawbacks: While StreetShares allows for a maximum loan or line of credit of $200,000, it only allows for businesses to borrow a maximum of 20% of their annual revenue. Your borrowing power is strictly limited by your annual revenue.

Highlights:

  • Personal credit score of 620 required
  • Loans range from $2,000 - $200,000
  • Rates range from 8.00% - 39.99%

Working Capital Loans for Excellent Credit

Borrowers with good to excellent credit scores will be able to qualify for affordable working capital loans and lines of credit from banks and credit unions.

Credibly
Credibly
Credibly

Consider this if you want an extremely affordable line of credit.

Financing Cost 1.15x - 1.49x Factor rate
Loan Amount Range $5,000 - $400,000
Loan Term Range 6 - 17 months
Repayment Daily or weekly
Funding Time As fast as 48 hours

Why we like it: The SBA CAPlines program includes a working capital line of credit, which lets borrowers borrow up to $5,000,000. The SBA guarantees up to 85% of the loan, and the SBA sets maximum rates of 6.75% - 9.25%, but they're variable depending on the market Prime Rate. Additionally, this line of credit has a maximum maturity of 10 years, which can really reduce the magnitude of monthly payments.

Drawbacks: SBA CAPlines are offered through lenders that partner with the SBA. Since most of those lenders are primarily banks, they're difficult to qualify for. Only those with strong cash reserves, profitability and excellent credit scores above 680 will likely be able to qualify. Lenders are also subject to charge different fees and rates so it's tough to know exactly how expensive these lines of credit will be until you apply.

Highlights:

  • Personal credit score of 680 likely required
  • Loans range from Up to $5 million
  • Rates range from 6.75% - 9.25%

Working Capital Loans for Start-Ups

SBA
SBA
SBA

Consider this if you need financing specifically designed for startups.

Financing Cost 11.50% Maximum interest rate
Loan Amount Range Up to $250,000
Loan Term Range Up to 25 years
Repayment Monthly
Funding Time 30-90 days

Why we like it: The SBA's Community Advantage (CA) loans are specifically designed to address unaddressed markets, including start-ups. The SBA does this by offering these loans through mission-focused lenders like Certified Development Companies (CDCs) rather than traditional lenders. CA loans are likely the largest working capital loans a start-up would be able to find with a maximum amount of $250,000.

Financing is largely difficult for any start-up to obtain because most lenders deem them too risky to lend to. The SBA's CA loan is a great product that not only makes financing available to start-ups but also does so with generous terms and at a low cost.

Drawbacks: Because CA loans are only offered through specific lenders, it may be tough to find a nearby lender that offers them. In those cases, you'd have to find a lender who works with borrowers online.

Highlights:

  • Personal credit score requirements vary by lender
  • Loans range from Up to $250,000
  • Rates range from 11.50%

Summary of Best Working Capital Loans

For quick comparison, we’ve summarized the best working capital loans, lines of credit and lenders for small businesses in the table below.

Best for...Lender/LoanRates
Borrowers with lower credit scores
  • Kabbage
  • Credibly
  • 20.00% - 80.00%
  • 1.15x - 1.49x
Borrowers with fair credit scores
  • StreetShares
  • 8.00% - 39.99%
Borrowers with excellent credit scores
  • SBA CAPLines
  • 6.75% - 9.25%
  • Vary
Start-ups and new businesses
  • SBA Community Advantage
  • 6.75% - 9.25%

When to Get a Working Capital Loan

If your business struggles with cash flow, it might be time to consider applying for a working capital loan. Lenders typically issue working capital loans with relatively short terms, so you need to be sure you can pay off your principal balance plus interest within a short amount of time.

Therefore, we don't recommend you use a working capital loan for larger purchases. Instead, consider a larger term loan. We also don't recommend working capital loans for small, daily expenditures either. For those, borrowers should look to use a business credit card.

Some of the most common use cases of working capital loans are to help fund marketing projects, cover late invoices or to replenish inventory. If used properly, a working capital loan should put your business in a much better position than before.

Justin Song

Justin is a Sr. Research Analyst at ValuePenguin, focusing on small business lending. He was a corporate strategy associate at IBM.

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