A customized financing solution
Your small business needs are unique. We’ll match you with the right loan option to solve for them.
Make hassle-free payments.
Find solutions fit to your needs.
Multiple use cases
Use for almost any business purpose.
Working Capital Loans: What You Need to Know
- Working capital loans serve a variety of purposes for a business. Understanding the pros and cons of a working capital business loan can help you decide if one is right for your business needs.
- Working capital loans are used to fund immediate business expenses from operational costs to jumping on an investment or growth opportunity.
- On this page, you’ll learn about why working capital loans are an efficient boost of capital for your business, what you can use the funds for, how to determine your working capital ratio, and how to qualify.
What is a working capital loan?
A working capital loan is a type of short-term loan that can be used to finance a company’s daily operations. This loan type focuses on operational business needs, rather than longer-term planning or assets, to support a business sustain growth in the short-term. Having working capital on hand allows a business to cover every day or unexpected expenses when experiencing disruptions in cash flow. A working capital loan acts as a lifeline for businesses lacking cash flow or who don’t have a predictable revenue stream.
Due to the nature of a working capital loan, it’s often important to get the funds as quickly as possible. Traditional banks typically take several weeks to approve an application, leaving your business strapped for cash. At SmallBusinessLoans.com, our partners have fast application processing and often release funding within 24 hours1 of approval. No waiting around to hear back from banks, so you can get the funding you need, quickly.
How does a working capital loan work?
Working capital loans provide a boost of capital to cover temporary gaps in cash flow, meet demand needs, or strategically position the business. For example, a working capital loan can cover the production costs to fulfill a large order when a business doesn’t have the product in stock.
Similar to other short-term loans, a working capital loan is customized to fit your needs and typically offers a shorter repayment period than longer-term loans. It often has more flexible qualifications, allowing the borrower to more quickly access capital upon approval.
What are the benefits of a working capital loan?
The here-and-now is just as important as your business’s future. Plan for the short-term and get the boost of capital you need to propel your business forward.
Take care of immediate needs
- Capitalize on investment opportunities or fulfill increased demand for your business
- Cover unexpected expenses or continue operations during business lulls
Get funding fast
- Working capital gives you the opportunity to make important business decisions quickly.
- With no delays in receiving funds, you can pay vendors or jump on opportunities in a timely manner.
Flexible repayment terms
- Your customized loan is tailored to your needs. Repayments can be made on a daily, weekly, or monthly basis.
- Our partners work closely with you to determine what works best for your business.
Increased approval rates
- With less stringent qualifications, you’re more likely to be approved than through a traditional bank.
- Our partners work quickly to process applications as soon as possible.
What can a working capital loan be used for?
Working capital gets you the funding you need for immediate business needs. Many business owners find working capital loans useful for short-term needs such as:
- Cover expenses during the off-season
- Pay for emergency expenses or unexpected repairs
- Jump on a growth opportunity
- Bridge a cash flow gap
- Fund a short-term project
No matter your situation, there’s a financing solution to help your business achieve its goals.
Working capital funding to support your industry
Every industry has a need for short-term funding. Our trusted lending partners have expertise in supporting many industries succeed.
Construction loans and financing
Buy equipment or hire workers.
Commercial trucking loans and financing
Expand your fleet or handle maintenance costs.
Agricultural loans and financing
Purchase more land or upgrade equipment.
Medical practice loans and financing
Cover insurance costs or upgrade software systems.
Landscaping loans and financing
Maintain capital during slow seasons or hire employees.
Loans and financing for other industries
Our partners have short-term business loan options for almost all industries.
How is working capital calculated?
Working capital is the difference between your business’ current assets and current liabilities. Assets may include accounts receivable, inventory, and cash on hand. Liabilities may include accounts payable and any payments due on business debts in the next 12 months. It is essentially the money leftover if your business paid its current liabilities (i.e., all payments due within one year of the date on the balance sheet) from its current assets.
Here is how working capital is calculated:
Current assets – current liabilities = working capital
As an example, if your business has assets worth $1 million and liabilities totaling $800,000, your business has $200,000 in working capital.
Some lenders ask for a working capital ratio in their loan application. To calculate the working capital ratio, the formula is slightly different but the concept is very similar.
A working capital ratio is calculated:
Current assets ÷ current liabilities = working capital ratio
Using the same example above, your business’ working capital ratio would be:
$1 million ÷ $800,000 = 1.25
The recommended working capital ratio is 2:1, so this example might indicate your business doesn’t have enough of a cash cushion.
How do I qualify for a working capital business loan?
It’s much easier to qualify for a working capital business loan through an alternative lender. There’s no long list of requirements or hoops to jump through. Some possible eligibility requirements may include:
- At least six months in business
- Minimum $250,000 in annual gross sales
- Fair to excellent credit
Our partners keep the paperwork to a minimum. Required materials are often limited to a credit check and bank statements so you can get approved for funding faster.
How do I apply?
It’s simple to apply for a working capital business loan. Just follow these three easy steps and you’ll be on your way to securing a financing solution for your business.
- Fill out a quick form online
No lengthy processes or tons of prep work
- Get matched
No getting bombarded by a bunch of lenders
- Get your funds fast
No waiting around for weeks and weeks.
After you submit your application, the lender quickly reviews your documents and gets a response back to you shortly. Then, if you accept the loan terms, the funds will be deposited to you in as little as 24 hours.1
SmallBusinessLoans.com believes access to financing shouldn’t stand in the way of achieving your goals. As your resource for financing solutions, we help you find the funding you need quickly so you can get back to what really matters – running your business.
Find your right match today.Get Started
Prioritizing your safety
SAFE & SECURE
We use AES 256-bit encryption to secure your data, the strongest encryption standard available today. Because your peace of mind is also ours.
Frequently asked questions
You may hear working capital referred to as gross, net, permanent, or regular. All have slightly different meanings we’ll outline here:
Gross working capital is the total amount of current assets in the business.
Net working capital commonly refers the current assets minus the current liabilities of a business.
Permanent working capital refers to capital that is permanently tied up in current assets, meaning it is the least amount of current assets needed to support the business.
Regular working capital is the least amount of capital required by a business to fund its daily operations, including salaries and overheard expenses.
Qualifying for a business loan with one of our partners is much easier than a traditional bank. While all lenders vary, it is recommended to have fair to excellent credit to get approved. However, there are loans available for businesses with poor credit.
Businesses who meet the qualifications can get a working capital loan whenever the need arises. Most lenders require a business to be in operation for at least six months to qualify.
A working capital loan is designed to help a business meet its current expenses or make immediate purchases, whereas a term loan is a general loan that can be applied for various costs, including long-term planning or projects.
Most lenders require a business to be in operation for at least six months in order to qualify for a loan.
Quick & easy small business financing
Fill out a quick form
No lengthy processes or tons of prep work.
No getting bombarded by different lenders.
Get your funds fast
No waiting around for weeks and weeks.