Working Capital Loans: Overview and Top Options

The general process for getting a working capital loan is similar to other loan types. You can follow these steps:

1. Understand your financing needs. Working capital loans are typically used for short-term business needs. You should start by assessing whether you really need capital now — or if you can wait in order to qualify for a longer-term, more affordable loan. If you decide to seek financing now, determine how much capital you need and how much you can afford. Use a business loan calculator to estimate interest costs and payments.

2. Evaluate your qualifications. Consider common business loan requirements like your personal credit score, time in business and annual revenue to determine which loan options are available to you.

3. Research lenders. Do some research to find lenders that suit your specific business needs. You can read online reviews to get a sense of what it’s like to work with a particular lender.

4. Gather business documents. As part of your application, you’ll need to provide financial statements like profit and loss statements, bank statements or tax returns, as well as business and legal documents, like your operating agreement and business plan. 

5. Submit your application. Once you submit your application, online lenders can review it in as little as a few hours, while banks take longer. SBA loans may have the longest application timelines. If you’re approved for financing from an online lender, you could have access to your working capital within a few days. Bank and SBA lenders, on the other hand, may take up to several weeks or even a few months. 

If you’re not sure that a working capital loan is right for your needs, you might consider these alternatives:

• For newer businesses. Business credit cards offer a revolving line of credit that you can spend up to a certain limit, similar to business lines of credit. If you pay your balance every month, you won’t pay any interest. If you don’t pay in full every month, you’ll pay interest on the remaining balance. Business credit cards typically require good personal credit, but not a lot of time in business. They can be a good option to cover short-term gaps in cash flow as long as you are diligent about paying down the balance each cycle.

• For those who can’t qualify for traditional financing. Family and friends business loans can be an option when you need capital, but don’t want to go through a formal underwriting process. These loans don’t typically require an application process, credit check or documents submission. Although family and friends loans are usually informal, put the loan terms in writing to avoid any misunderstandings that could affect your personal relationships.

• For those looking to avoid debt. If you don’t want to take on debt to obtain working capital, you might consider alternatives such as crowdfunding or small-business grants. Crowdfunding can be a good option for businesses with an established online or social media presence. Business grants can be a good option for a wide variety of small businesses, but applications are competitive.