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

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What is a working capital loan?

Working capital is more commonly known as net working capital, and it's the total difference between a business's assets and liabilities. It's an effective measure that demonstrates a business's liquidity and its short-term financial health. One of the most effective ways to support a business's net working capital is through a working capital loan.

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 borrower with a weaker personal credit score, lower cash flow or a low age of operations might be better served by 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.

We based our top picks on a number of factors, including speed of funding, minimum requirements, and the size of financing.

Working capital loans for bad credit (300 - 579)

Obtaining financing with a low personal credit score is seemingly impossible. Many lenders heavily filter applicants based on their personal credit scores, and those with lower credit scores are often immediately denied. However, that practice has since led to the emergence of alternative lenders, many of whom have very lenient credit score requirements. Instead, many alternative lenders base their criteria around the overall health of the business.

Kabbage
Kabbage

Consider this if you want a flexible line of credit from a lender with lenient requirements.

Financing Cost 20.00% - 80.00% APR
Loan Amount Range $2,000 - $250,000
Loan Term Range 6, 12 or 18 months
Repayment Monthly
Funding Time As fast as same day

Loan Details

  • Loan amount: $2,000 - $250,000
  • Rates: 20.00% - 80.00% APR
  • Term: 6, 12 or 18 months
  • Min. credit score required: 560

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. However, if you're still able to demonstrate a positive net outcome even with Kabbage's higher rates, we'd still recommend applying.

Working capital loans for good credit (580 - 679)

Borrowers with good personal credit will benefit from a wider selection of lenders and products. A credit score within a range of 580 - 679 will still likely keep you limited to online lenders, but the rates charged for borrowers with stronger profiles are far better.

Credibly
Credibly

Consider this if you want flexible financing.

Financing Cost 1.15x - 1.49x Factor rate
Loan Amount Range $5,000 - $400,000
Loan Term Range 6 - 18 months
Repayment Daily or weekly
Funding Time as soon as the same day
Loan Details
  • Loan amount: $5,000 - $400,000
  • Rates: 1.15x - 1.49x Factor rate
  • Term: 6 - 18 months
  • Min. credit score required: 500

Why we like it: Credibly is an excellent lender for those looking for flexible forms of financing, as it offers a working capital loan, a business expansion loan, and a merchant cash advance. Credibly offers financing with reasonable rates and flexible requirements. Although Credibly only requires a minimum personal credit score of 500 for its working capital loan, we'd recommend those with higher credit scores apply since Credibly's rates can be expensive for those with weaker financial profiles.

Credibly's working capital loan is one of the larger loans in the market. It's also unsecured, which means borrowers don't need to put up collateral. However, personal guarantees and UCC-1 filings are required.

Drawbacks: Many online lenders price financing with factor rates rather than APR's including Credibly. Factor rates make it difficult to compare loans side by side since most loans are priced using APR's, but they do make it easy to calculate your total payment. For example, if you take out a $50,000 loan with a 1.3x factor rate, you'd pay $65,000 total. Factor rates can quickly become expensive which is why we recommend Credibly's working capital loans to those with better credit scores.

Working capital loans for excellent credit (670 - 800)

Borrowers with excellent personal credit will likely have the widest selection of financing available. Not only is the selection of borrowers larger, the rates charged by online lenders are also going to be far lower.

SnapCap
SnapCap

Consider this if you want a concierge experience with a single application.

Financing Cost 19.99% - 49.99% APR
Loan Amount Range $5,000 - $1,000,000
Loan Term Range 3 - 36 months
Repayment Daily or weekly
Funding Time As fast as one business day
Loan Details
  • Loan amount: $5,000 - $1,000,000
  • Rates: 19.99% - 49.99% APR
  • Term: 3 - 36 months
  • Min. Credit Score Required: 500

Why we like it: By filling out a single application with SnapCap, borrowers are given a wide range of offers from different lenders. SnapCap also excels above other marketplaces by providing concierge services to help match borrowers with the right financing and lender depending on the borrower's needs. Although they work with all sorts of borrowers including startups and business owners with lower credit scores, we recommend SnapCap to those with excellent scores because they can fully recognize the large variety of offerings SnapCap offers. Because the range of offerings varies so significantly at SnapCap, business owners with excellent credit scores are in the best position to access offers with the best terms and rates.

Drawbacks: Although SnapCap is fairly comprehensive, it doesn't partner with every single lender in the market. If you want to conduct a truly comprehensive comparison search, we'd recommend applying with additional lenders that SnapCap doesn't partner with separately.

Working capital loans for start-ups

Fundbox
Fundbox

Consider this if you need financing specifically designed for startups.

Financing Cost 15.00% - 59.00% APR
Loan Amount Range $100 - $100,000
Loan Term Range 12 weeks
Repayment Weekly
Funding Time As fast as next business day
Loan Details
  • Loan amount: $100 - $100,000
  • Rates: 15.00% - 59.00% APR
  • Term: 12 weeks
  • Min. Credit Score Required: No minimum

Why we like it: Fundbox offers some of the most lenient requirements in the market, which makes it a great lender for startups and new businesses. Many lenders carry strict minimum age of operations or minimum personal credit score requirements, but Fundbox is one of the rare exceptions. One of the more unique benefits to Fundbox's business line of credit is that you're also not required to immediately use the funding after getting approved, which is especially helpful to new businesses that have more unpredictable needs and demands.

Drawbacks: Fundbox incurs a higher risk by enforcing such lenient requirements. The increased risk is reflected in Fundbox's higher fees and lower maximum loan amount. The upside is that even if you have a poor personal credit score and a relatively new business, you might still be eligible for a loan with them.

Summary: Our top picks

In the table below, we’ve summarized our top picks for the best small business loans for the most common use cases.

Best For

Recommended LenderMax Loan Amount
Lower Credit ScoresKabbage$250,000
Learn More

on SnapCap, another LendingTree affiliate

Good Credit ScoresCredibly$400,000
Learn More

on SnapCap, another LendingTree affiliate

Excellent Credit ScoresSnapCap$600,000
Learn More

on SnapCap, another LendingTree affiliate

StartupsFundbox$100,000
Learn More

on Fundbox's secure website

Best For

Recommended Lender
Lower Credit ScoresKabbage
Learn More

on SnapCap, another LendingTree affiliate

Good Credit ScoresCredibly
Learn More

on SnapCap, another LendingTree affiliate

Excellent Credit ScoresSnapCap
Learn More

on SnapCap, another LendingTree affiliate

StartupsFundbox
Learn More

on Fundbox's secure website

Honorable mentions

We highly recommend shopping around with as many lenders as possible in order to get the best offer. These lenders narrowly missed the cut for various reasons and should be added to your shortlist of lenders to apply with.

OnDeck

OnDeck
OnDeck

Consider this if you need larger financing from a fast lender.

Financing Cost 9.30% - 99.70% APR
Loan Amount Range $5,000 - $500,000
Loan Term Range 3 - 36 months
Repayment Daily or weekly
Funding Time As fast as one business day

Loan Details

  • Loan amount: $5,000 - $500,000
  • Rates: 9.30% - 99.70% APR
  • Term: 3 - 36 months
  • Min. Credit Score Required: 600

Why we like it: Loans from OnDeck are some of our top working capital recommendations. OnDeck provides all the benefits one can expect from online lenders like fast financing and lenient application requirements. While they aren't as large as those from banks, OnDeck's loans are some of the largest offered by an online lender.

Drawbacks: While OnDeck offers the same benefits that most online lenders do, it also comes with the high fees and costs that other online lenders do as well. OnDeck's capital can be expensive and out of reach for those with lower credit scores. Business owners who tend to be accepted by OnDeck can often find a cheaper loan elsewhere, which is why it didn't quite make our list.

StreetShares

StreetShares
StreetShares

Consider this if you prioritize transparent financing and affordable rates.

Financing Cost 8.00% - 39.99% APR
Loan Amount Range $2,000 - $250,000
Loan Term Range 3 - 36 months
Repayment Weekly
Funding Time As fast as same day

Loan Details

  • Loan amount: $2,000 - $250,000
  • Rates: 8.00% - 39.99% APR
  • Term: 3 - 36 months
  • Min. Credit Score Required: 620

Why we like it: StreetShares offers business lines of credit, term loans, and invoice financing, which makes it one of the more flexible options in the market. StreetShares is one of the most transparent lenders in the market and make its rates extremely clear compared to some lenders who tend to mask the true cost of their rates. It's a huge plus and military veterans may be eligible for discounts.

Drawbacks: The only reason why StreetShares didn't make our list is because borrowers are limited to borrowing 20% of their annual revenue. While StreetShares's maximum loans are comparable to other lenders in the market, the 20% limit may be too heavy a restriction for many business owners.

Types of working capital loans

Working capital loans usually refer to any short-term financing product, and those loans can vary greatly. We broke down the most common forms of short term financing that are available.

Term Loans: lump sum loans that are paid back over a predetermined length of time with interest. Term loans are best used for large purchases where it's advantageous to spread them out over longer periods of time.

Business Line of Credit: revolving lines of credit that can be best used for small to medium-sized regular purchases. These typically include marketing campaigns and payroll expenses. Fees are typically only applied when the line of credit is actually used.

Business Credit Cards: similar to personal credit cards, and many business credit cards come with a variety of rewards and benefits. These are best used for daily purchases.

Commercial Real-Estate Loan: similar to consumer real estate loans or mortgages but for commercial real estate purchases, rentals, and renovations

Equipment Financing: similar to term loans and solely to be used to purchase large equipment or heavy machinery. The bought equipment is usually used as collateral for the loan.

Invoice Factoring: similar to cash advances against unpaid or active invoices. Ideal for businesses that have clients who often pay invoices late.

Merchant Cash Advance: a cash advance against the daily credit/debit card transaction volume. Best for retail stores or businesses that have high volumes of card transactions and also can't qualify for more traditional financing.

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.

How to get a working capital loan

Choosing the right working capital loan for your business requires diligence and careful attention to detail. Loans often come with numerous terms and fine print that you should be aware of before signing. Lenders aren't necessarily trying to scam you, but dealing with a large amount of capital always comes with a number of conditions.

How much financing do you need?

The biggest determinant in this process is the amount of financing that your business actually needs. It's the easiest way to filter out any lender that doesn't fit your needs. First determine what you need financing for and how much you need.

What can you afford to pay back?

After determining the minimum size of the loan that fits your needs, you can then determine how much you'd be able to pay back once the loan is required to be paid in full. This will help you determine your budget, and you can then further filter down your shortlist based on the rates that different lenders charge.

Pay attention to the minor details

Determining the loan amount that you need and the range of rates that you want to pay are likely the two most important things you'll first determine. However, the additional details are crucial as well. Pay attention to the repayment schedule, the length of the loan, prepayment discounts, and more.

Does your business model support paying back a loan on a daily basis? Over how many months can you repay your loan? These are still important things to consider.

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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