Having enough working capital is key to every successful business — it gives you the ability to cover day-to-day expenses as well as the flexibility to invest in your company’s growth.
But many businesses struggle with having enough working capital at any given time. If you can’t meet everyday expenses such as rent, payroll and debt payments, you won’t be able to capitalize on opportunities to grow your business. That’s where working capital loans can help.
Ideally, you’d establish a line of credit with a bank before experiencing a cash-flow crunch, because banks offer the lowest financing rates. But several online products are available that give you an additional option. They can help you get cash quickly, manage inventory costs or take advantage of a business opportunity while preserving working capital for your regular financial obligations.
There are many options, so look for a business loan that best fits your specific situation. Here we recommend working capital loans and lines of credit based on your qualifications:
- If you have a personal credit score of at least 600 and need inventory financing.
- If you have poor credit and need cash fast.
- If you’ve been in business at least a year and make $200,000+ annually.
- If you have at least three employees and make $100,000+.
- If you have good credit and your business is profitable.
- If you have $75,000+ annual revenue and a personal credit score of at least 600.
- If you have an established business and good credit.
If you have a 600+ credit score and need inventory financing
Dealstruck offers multiple loan options, allowing business owners to decide which product best suits their needs. The company’s inventory line of credit, in particular, can help alleviate short-term working capital crunches by helping you manage your inventory costs.
The lack of effective inventory management is a primary reason businesses have lapses in available cash, says Will Katz, director of the Small Business Development Center at the University of Kansas. If you need to purchase a lot of inventory upfront that you won’t sell and profit from until weeks or months later, inventory financing is one solution.
Dealstruck’s terms
APR: 11% to 28%
Loan amount: 100% of inventory purchases up to $500,000*
Length of term: 6 months per draw for inventory line of credit*
*Terms differ for Dealstruck’s asset-based lines of credit and term loans
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If you have poor credit and need cash fast
As noted above, your best practice is to secure financing long before you actually need it. But if you’re in a pinch, Kabbage offers a line of credit and can get you approved and funded within a few days. Because the company focuses on online accounting platforms, e-commerce and social media accounts instead of just your credit score, the qualifications to receive funding are a bit looser than at a traditional lender.
Ease in qualifying, however, means some of the highest annual percentage rates in the business, so make sure you consider the possible ramifications before applying.
Kabbage’s terms
APR: 32% to 108%
Loan amount: $2,000 to $100,000
Loan term: 6 months
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If you’ve been in business a year and make $200,000+ in revenue
Though slightly harder to qualify for than Kabbage, OnDeck can also get you funded quickly if getting cash fast is a top concern. The fact that OnDeck focuses more on cash flow than credit history helps speed up the application process, though you still have to have been bankruptcy-free for the past two years to qualify for its lines of credit.
OnDeck’s terms
APR: 14% to 36% for lines of credit
Loan amount: Lines of credit up to $100,000
Loan term: 6 months for lines of credit
If you have at least three employees and make $100,000+
Fundation offers term loans for 8% to 30% APR, making it a solid choice if you’re looking to make an acquisition or hire employees. During Fundation’s application process, you’re paired with a customer service agent who can help you through the process and prepare you for your conversation with an underwriter, which could be especially beneficial if your application has any red flags. Some borrowers may not like that Fundation pulls payments automatically from their bank accounts semi-monthly instead of once a month. But a plus with Fundation is that you can pay off your loan early without a penalty fee.
Fundation’s terms
APR: 8% to 30%
Loan amount: $20,000 to $500,000
Loan term: 1 to 4 years
If you’ve been profitable at least one of the last two years
Funding Circle is a peer-to-peer funding platform for businesses that are well-established and making money. Not only must you have been profitable one of the past two years, but you also must have been bankruptcy-free for the past seven years. Funding Circle also requires a personal guarantee. However, the APRs are competitive, coming in at 8% to 33%.
Funding Circle’s terms
APR: 8% to 33%
Loan amount: $25,000 to $500,000
Loan term: 12, 24, 36, 48 or 60 months
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If you have $75,000+ revenue, 600+ personal credit score
Lending Club, similar to Funding Circle, is a peer-to-peer marketplace that offers competitive rates for qualifying borrowers. To qualify, you need to own at least 20% of your business and provide collateral for loans of more than $100,000. You can apply in as little as five minutes and receive funding anywhere from a couple of days to two weeks later.
Since Lending Club’s terms and APRs are similar to those of online lenders Funding Circle and Fundation, you may want to consider applying for all three and choosing the one that offers you the best APR. Complete all three applications within a short time so they count as only one hard inquiry on your credit report.
Lending Club terms
APR: 8% to 32%
Loan amount: $5,000 to $300,000 for term loans and lines of credit
Loan term: 1 to 5 years for term loans, up to 25 months for lines of credit
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If you have an established business and good credit
Do you qualify?
SmartBiz provides Small Business Administration loans, which have the most competitive rates on the market. The low rates don’t come easy, however, as the SmartBiz application process can be arduous, due to the SBA’s strict requirements. But if you’re interested in expanding your business or you’re looking for long-term working capital, the extra work could result in rates of 7% to 8% for a term loan.
SmartBiz’s terms
APR: 7% to 8%
Loan amount: $30,000 to $350,000
Loan term: 10 years
Evaluate small-business loans carefully
When looking for a working capital loan, it’s important to compare all your options based on APR, which represents the true cost of the loan, including all fees. To evaluate other loans, you can go to NerdWallet’s small-business loan tool. NerdWallet’s list of lenders is based on factors including market scope, user experience and lender trustworthiness.
Compare business loans
Teddy Nykiel is a staff writer at NerdWallet, a personal finance website.Email: teddy@nerdwallet.com. Twitter: @teddynykiel
Jackie Zimmermann is a staff writer at NerdWallet, a personal finance website. Email: jzimmermann@nerdwallet.com. Twitter: @jackie_zm
This post was updated. It was originally published on Aug. 25, 2015.
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