What is a Working Capital Loan and How You Can Make it Work for You

Working Capital Loan: 

A working capital loan is a type of short term financing that allows a business to cover operational costs such as rent, payroll, inventory purchase, or marketing. Banks tend to offer the lowest annual percentage interest rate on these types of loans as they are almost always profitable investments for the bank to take on. However, because the interest of the bank relies solely on your repayment, the credit score requirements can be outrageous for acquiring this type of loan, even though the lended funds always go directly towards operating your business. 

How to get a Working Capital Loan: 

Working capital loans are available from a variety of sources. Banks and Credit unions will have large credit requirements for business owners seeking this short term payment but private lenders will be less picky in this regard. This short-term loan is usually sought out to quell a dry period in business operations, and may not be the best choice for a business that needs funds to expand. 

Types of Working Capital Loans:

Term Loans: provide a sum of cash upfront that is repaid over a period of time with fixed, equal payments. These can also be used for long term financing for expanding business. 

Business Lines of Credit:  more flexible than a term loan because you get access to different lines of credit and only pay interest on your borrowed amount. With business lines of credit loans, you are able to draw and repay money as you need and provide you do not exceed the agreed upon limit. 

SBA Loans: loans guaranteed through the U.S. Small Business Administration and issued through participating banks and credit unions. These loans provide up to $5,000,000 from working capital or business expansion. 

Invoice Factoring: allows you to use proof of unpaid customer invoices to receive a lump sum of money with very little interest attached.