A Guide to Working Capital Loans for Your Business

ByNaftali FeigSep. 10, 2020

This site is a free online resource that strives to offer helpful content and comparison features to its visitors. Please be advised that the operator of this site accepts advertising compensation from companies that appear on the site, and such compensation impacts the location and order in which the companies (and/or their products) are presented, and in some cases may also impact the rating that is assigned to them. To the extent that ratings appear on this site, such rating is determined by our subjective opinion and based on a methodology that aggregates our analysis of brand market share and reputation, each brand's conversion rates, compensation paid to us and general consumer interest. Company listings on this page DO NOT imply endorsement. We do not feature all providers on the market. Except as expressly set forth in our Terms of Use, all representations and warranties regarding the information presented on this page are disclaimed. The information, including pricing, which appears on this site is subject to change at any time.

Watch your business grow with more working capital
Working capital is what enables businesses to effectively manage business cash flow, even during times of financial instability. If you're looking forward to growth in the coming year, here's what you may want to know about working capital loans.

The Top Lenders at a Glance

Minimum Credit Score Time Until Funding Visit Site
Lendio 580
As little as 24 hours View Rates
Fundera 680
2 days to 2 weeks depending on the lender View Rates
OnDeck 600
As fast as 24 hours View Rates

What is a Working Capital Loan?

The term ‘working capital loan’ refers to any type of financing that helps a company cover everyday expenses. These loans can be used for short-term operational costs like rent, payroll, and accounts payable. They aren’t used for long-term investments or purchases

One of the reasons why working capital is so important is that it can be used in so many different ways that are critical to the survival of the business. It represents an essential source of capital particularly during times when business revenue isn't fully covering business expenses. For example, working capital can be used for any of the following expenses:

  • Purchasing inventory
  • Hiring new employees
  • Paying taxes

How to Choose a Working Capital Loan

When searching for a working capital loan, always compare lenders by rates, repayment terms, loan amounts, and reputation. But most importantly, check that lenders offer the right type of working capital for you. 

Generally speaking, any type of financing designed to cover a business’ daily expenses could be termed a working capital loan. 

The Main Types of Working Capital Loans

Business line of credit

Business line of credit is a flexible type of funding where the lender agrees to supply credit to a business. The business may withdraw funds at any time, up to the credit limit set by the lender. The business repays only what they withdraw, plus interest. As the business repays the principal, the amount is added back to their credit balance.

Invoice factoring

An advance on a business’ accounts receivable that allows the business to obtain funds without taking on debt. Let’s say the business has invoices for $20,000 due in 90 days. Rather than wait for 90 days, the business sells its invoices to the lender for a fee. 

Merchant cash advance

An advance on a business’ future sales that allows the business to obtain funds without taking on debt. The two parties agree on a percentage of daily, weekly, or monthly sales to be automatically deducted from the business’ bank account. 

Unsecured short-term business loan

Some lenders offer a version of a short-term business loan that is actually called a working capital loan. These loans have repayment terms of 6-18 months. Some lenders calculate repayments by factor rate rather than interest rate—making this similar to invoice factoring or a merchant cash advance. Repayments are automatically deducted from the business’ bank account every day or week. Unlike a regular business loan, no collateral is required (and, therefore, the application process is simpler). 

What are the Requirements for Working Capital Loans?

Some types of working capital financing are easier to get approved for than others. All types require the business to have been in operation for a minimum period of time and to generate a certain amount of monthly revenues. 

When you apply for working capital, you can expect to be asked for the following:

  • Information about yourself (and any partners with a 20% share or more in the business)

  • Information about your business, such as what it does and how long it’s been in operation

  • Social Security number, so that the lender can run a credit check

  • Estimated monthly business revenue (or, in some cases, proof of revenue)

  • Recent bank statements

  • Details about your invoices

Why Use a Working Capital Loan? 

According to a US bank study, poor cashflow management is a factor in 82% of small business failures. Invest too much cash in growing the company and you leave too little for everyday expenses. Keep too much cash in the bank and you prevent yourself from growing. Working capital loans solve this problem by providing financing for operational expenses, letting you dig into your cash reserves to invest in and expand your business.

The 3 Best Lenders

1. Lendio


  • 10 different loan types
  • No minimum credit score    

Lendio is an online small business loan aggregator that brings business owners and lenders together on one platform. The site is free to use, and offers at over ten distinct loan programs, for every business need, from business acquisition to funding for commercial real estate, increasing your changes to find both a lender and a specific loan program that suits your needs. 

Read the full Lendio Review >>  

Lendio Lendio View Rates

2. Fundera


  • Keeps information private, even from lenders
  • Highly acclaimed

Founded as an alternative to traditional bank loans, Fundera has worked hard to build a solid reputation of trust, professionalism, and competitive rates. With a wide range of loan types and flexible repayment options, Fundera gears itself towards small business loans and provides loans of anywhere from as little as $5,000 up to $5 million.

Read the full Fundera review >>

Fundera Fundera View Rates

3. OnDeck


  • 24-hour approval
  • Excellent customer service

OnDeck offers conventional business loans and lines of credit, allowing flexibility to get the loan you need. Best of all, you can have your money within 24 hours with fast approval and excellent customer service.

Read the full OnDeck review >>

View Rates


Working capital will allow your business to continue to grow no matter what happens. One way to ensure a healthy and strong working capital is by reading reviews and collaborating with a suitable lender that has the strength and financial immunity to offer ongoing cash flow to fit your needs.