The Top 5 Best Working Capital Loans for Small Businesses in 2018
Working capital is essential for any functioning business; without enough of it, business owners can’t afford to pay their employees, fill orders, or even keep their lights on. Even if a business has thousands (or millions) in unpaid invoices, if they don’t have enough cash to operate, they can easi
Start Your Application and Unlock the Power of Choice$5.6M offered by a Bank at 6.1%$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1.4M offered by an SBA Lender at 9%Click Here to Get Quotes!Working capital is essential for any functioning business; without enough of it, business owners can’t afford to pay their employees, fill orders, or even keep their lights on. Even if a business has thousands (or millions) in unpaid invoices, if they don’t have enough cash to operate, they can easily find themselves in big trouble.
In theory, working capital can be calculated by taking any business assets that can be converted into cash within 1 year, and subtracting any business liabilities that will be due within that same time period. However, in practice, a business might need working capital in days, not months— and that’s why a working capital loan is often the best way for a business to get the financing it needs. Below, we’ll mention some of the best working capital loans out there, and how they might be able to help your small business thrive.
SBA Loans
While we might be a little biased, SBA loans are actually a great source of working capital financing for small businesses. Many borrowers choose the SBA 7(a) loan for working capital, while borrowers who need loan amounts of under $50,000 may find that an SBA microloan better suits their needs. SBA microloans can be particularly helpful for smaller businesses and startups, as they don’t have the strict credit requirements that characterize most SBA loans.
Kabbage
Kabbage is a small business financing service that permits working capital loans of up to $250,000. Unlike many other lenders, Kabbage uses a variety of information to help calculate a borrower’s creditworthiness, not just their credit score. That makes it much easier for newer businesses to get the financing they need.
LoanBuilder
LoanBuilder, which is a service provided by PayPal, offers working capital financing in amounts between $10,000 and $50,000. LoanBuilder loans have factor rates, instead of traditional APR, which means that borrowers will have to repay a fixed amount of interest, no matter how fast they pay back their loan.
StreetShares
StreetShares, which offers working capital financing in amounts up to $100,000, is known for its speedy turnaround time; loans can be approved and funded in as little as a few days.
FundBox
FundBox is specifically designed for businesses with unpaid customer invoices, and can provide working capital loans of between $1,000 and $100,000. Unlike many other working capital lenders, FundBox has no minimum credit score or annual revenue requirements. Plus, it doesn’t require businesses to have been around for a long time either; businesses can get approved with as little as three months of records in a compatible accounting software.
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Related Questions
What are the best working capital loans for small businesses in 2018?
The top 5 best working capital loans for small businesses in 2018 are:
- StreetShares - offers working capital financing in amounts up to $100,000, with speedy turnaround time; loans can be approved and funded in as few as a few days.
- Kabbage - offers working capital loans of up to $250,000, and uses a variety of information to help calculate a borrower’s creditworthiness, not just their credit score.
- Fundbox - offers working capital loans of up to $100,000, and uses a variety of information to help calculate a borrower’s creditworthiness, not just their credit score.
- BlueVine - offers working capital loans of up to $250,000, and uses a variety of information to help calculate a borrower’s creditworthiness, not just their credit score.
- OnDeck - offers working capital loans of up to $500,000, and uses a variety of information to help calculate a borrower’s creditworthiness, not just their credit score.
What are the advantages of using a working capital loan for small businesses?
Working capital loans have a variety of benefits— including the fact that they don’t require small business owners to sacrifice any of their valuable equity just to keep their business running. Additionally, many working capital loans, such as the SBA 7(a) loan and the SBA express loan, often have a faster turnaround time than traditional term loans, which are usually used to finance fixed, long-term assets such as commercial real estate. For example, StreetShares, which offers working capital financing in amounts up to $100,000, is known for its speedy turnaround time; loans can be approved and funded in as little as a few days.
However, working capital loans aren’t without their disadvantages. In most cases, these loans will have significantly higher interest rates than traditional term loans, which are usually used to finance fixed, long-term assets such as commercial real estate. Additionally, many working capital loans, including the SBA 7(a) loan and the SBA express loan, often require a certain amount of collateral. Therefore, businesses owners who may not much in the way of collateral may want to look toward another SBA loan program, the SBA CAPlines program. CAPlines is specifically designed as a revolving line of credit for businesses with a cyclical sales cycle, and permits borrowers to use unpaid client invoices as a form of collateral.
What are the eligibility requirements for a working capital loan?
In order to qualify for an SBA 7(a) loan for working capital, you’ll need:
- A credit score of at least 690
- A record free of any bankruptcies in the past three years
- At least a 10% down payment
- For franchisees, a paid franchise fee before the loan funds are released
- A clean criminal history, or the ability to explain any misdemeanors on your record
- No current Federal debt
In addition, the business that will benefit from the loan will generally need to be:
- A for-profit entity
- A small business
- Based in the United States
- A business with invested equity
- A business that has exhausted its other financing options
These requirements ensure that the loan is eligible for SBA backing. If the loan is ineligible, you’ll need to seek other forms of small business financing.
What are the different types of working capital loans available for small businesses?
The SBA 7(a) is the administration’s flagship term loan program. However, the SBA also offers specialized loan programs for certain circumstances. Some loan programs small businesses that need working capital might qualify for include:
- CAPLines – A revolving line of credit for financing seasonal or short-term needs. CAPLine loans that will be used for working capital require the borrower to show that their business generates accounts receivable and/or has inventory already.
- International Trade – For businesses that need funds to export internationally. This program offers up to a $4 million guarantee for working capital
- Export Working Capital – provides additional funding to increase domestic export sales without disrupting your business plan. This program allows for advances of up to $5 million to fund export transactions. These loans require that the business has been established for at least 12 months, and that the Export Management Company or Export Trading Company will take the title to the goods or services being exported, and the EMC or ETC has no bank ownership.
- Microloans – SBA-backed loans up to $50,000
- StreetShares – StreetShares, which offers working capital financing in amounts up to $100,000, is known for its speedy turnaround time; loans can be approved and funded in as little as a few days.
What are the best practices for using a working capital loan for small businesses?
The best practices for using a working capital loan for small businesses include:
- Ensuring that you have enough working capital to cover your current liabilities and expenses.
- Making sure that you have a plan for how you will use the loan proceeds.
- Researching different loan products to find the best fit for your business.
- Comparing interest rates, repayment terms, and other loan features.
- Considering the impact of the loan on your credit score.
For more information, you can check out this article and this article.