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Working Capital Loan Requirements: How to Qualify

Working capital loan requirements

Written by: Kelly Hillock

November 2, 2023

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Working capital loan requirements
4 min read

Working capital is a vital aspect of any business. It’s the cash that keeps your business running – paying staff, keeping the lights on, and any other essential daily expense. Small businesses need sufficient working capital flowing through their business to remain operational and meet any business goals. When your business is struggling to pay invoices or keep things running smoothly, a working capital loan provides the boost your business needs to make ends meet. A working capital loan is a popular loan type that helps many small business owners get to where they need to be. But, how do you actually get a working capital loan? Here we’ll dive into the typical requirements for a working capital loan so you can make an informed decision for your business.

Understanding your business needs from a working capital loan

While working capital loans are a popular choice, they are not the only loan type available. There’s a variety of loan types suited to meet a variety of business needs, so to determine if a working capital loan works best for your business, ask yourself the following questions:

  • Do you have enough funds to cover recurring payments like utilities and payroll?
  • Is cash able to move freely throughout your business?
  • Are you in a period of growth and in need of additional funds to fuel expansion?

If you answered yes to any of these questions, then a working capital loan may work best for you. It’s also a good idea to know what your business needs from a working capital loan are. Ask yourself the following questions before you apply to determine your working capital business needs:

  • Why do you need a working capital loan?
  • How much funding do you need?
  • How much of a loan can you afford to repay?
  • How are you going to use the working capital loan?
  • Can you afford to put down collateral if needed?

Knowing all this will help inform the type of lender you work with. Some lenders offer higher funding amounts, flexible terms, and no collateral so it’s a good idea to look for a lender that matches your needs.

Qualifying requirements for a working capital loan

Credit score and credit history

Your credit score is perhaps the biggest indicator of your credit worthiness and lenders use it to determine how much of a risk your application is and the overall reliability of your business. The higher your credit score, the more likely you are to get a loan approved. Credit score also helps determine your loan’s interest rate. Typically, lenders look at both your personal and business credit score, especially if your business doesn’t have much established credit. Traditional banks look for excellent credit scores, while alternative lenders look for businesses with anywhere from fair to excellent credit.

Collateral and personal guarantees

Collateral is often used to secure a loan and provides lenders with a secured asset against the loan to protect their interests. Separately, a personal guarantee is a declaration the loan will be repaid in full without the need for collateral. Both collateral and personal guarantees can make your loan application stronger and provide access to higher loan amounts and lower interest rates. It’s common for traditional lenders to ask for collateral on a loan, especially if your credit score is on the lower end. Alternative lenders, like our partners at, are more likely to ask for a personal guarantee over collateral. Many business owners don’t want to or can’t offer collateral on a loan, making a personal guarantee a much more achievable way to get funding.

Current assets and liabilities

Lenders also commonly look at a business’s debt service coverage ratio (DSCR) as a way to determine eligibility. Debt service coverage ratio measures a company’s ability to repay its loans and make dividend payments. It measures debt capacity and the ratio of debt to total assets.

To calculate your DSCR, you simply divide the total net operating income by debt service. A healthy DSCR is considered 1; anything less than 1 would make it difficult to get approved for a working capital loan.

Cash flow projections

Cash flow projection is another consideration lenders look at during the application process. It estimates the money expected to flow in and out of your business, including all your income and expenses. It’s common for projections to cover an entire 12-month period and should include historical financial data as well as future business plans. This gives insight into the available and expected working capital your business has and helps lenders assess the business’ ability to repay the loan.

Business plan

A business plan gives insight into your business and allows lenders to see where your business plans are. Lenders use it to determine the potential success and viability of a business. A business plan should include some general information about your business including the target market, revenue generation, management team, financial projections, and available collateral. You can learn more about writing a detailed business plan in this article.

Other documents required for a working capital loan

In addition to the items outlined above, lenders will also ask for additional documents such as bank statements, income statements, balance sheets, tax returns, and business licenses. To ensure your application goes as quickly as possible, it’s a good idea to gather all the necessary documents before you submit your application.

Working capital loans can be a fast, flexible financing option for your business – and having everything you need in one place makes the process even smoother. Our partners at can fund loans in as little as 24 hours, ensuring you get the funds you need to keep your business operational as quickly as possible.

About the Author

Kelly Hillock

Kelly Hillock is the content marketing manager for SmallBusinessLoans, where she writes and edits articles for small business owners. Kelly has over eight years’ experience in copywriting across a variety of industries, focusing on entrepreneurship and finance. She has a Bachelor of Arts in journalism from San Diego State University.

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