Seasonal firms and those that require a one-time infusion of cash to stay afloat benefit most from working capital loans, which are short-term financing options available to business owners to cover operating expenses. Term loans, lines of credit, SBA loans, and invoice factoring are common sources of working capital.
How Do Working Capital Loans Work?
A working capital loan is a good option if you need money to keep your business running. Payroll, debt payments, inventory replenishment, and rent payments fall under this umbrella. The most common sources of working capital loans include banks, credit unions, and online lenders.
Short-term business loans may have lower annual percentage rates (APRs), but they can still vary from 3% to 99%. Online lenders may have less severe rules for short-term business loans than long-term ones.
A Working Capital Loan: How to Get One
When applying for a working capital loan, there are many variables to consider, including the type of loan and the lender. However, a few stages are likely to be encountered when applying for this type of loan. Get a working capital loan by following these steps:
· Analyze your borrowing needs
If you think a working capital loan could help your business, take the time to figure out how much and for how long you need to borrow. Think about your monthly budget and whether you need a lump-sum payment or a line of credit that you can use as and when needed.
· Check your personal and business credit
Having a separate credit profile for your business means that lenders will look at your personal and corporate credit scores. Check your scores to see if you have a good chance of being accepted before applying. An individual's FICO score must be at least 530 to be eligible for a working capital loan. For the best prices and terms, you'll need a credit score of at least 600.
· Examine and compare lenders
You'll need to know how much you need to borrow and whether or not you're likely to qualify for a loan before you begin searching for lenders. Compare interest rates, payback terms, and fees with banks, credit unions, and internet lenders. Then, spend some time reading customer evaluations to understand how each lender stacks up.
· Collect required documents
Lenders may have different documentation requirements. On the other hand, financial institutions typically require applicants for business loans to disclose information on current business loans and provide at least 12 months of personal and business bank statements and tax returns for at least two years. If you own a startup, you may also be required to provide a detailed business plan.
Working Capital Loans: Advantages and Disadvantages
It's simple to get a working capital loan, and it can be used to address any shortfalls in working capital expenditures quickly and effectively. This is a sort of debt financing that does not necessitate an equity exchange. Thus the business owner retains full control of their firm even if they are in severe need of funds.
There are certain unsecured working capital loans. If this is the case, no collateral is necessary to secure the loan. On the other hand, an unsecured loan is only available to firms or business owners with a good credit rating. The loan must be securitized if the borrowers have little or no credit history.
2022's Best Working Capital Loans
This type of short-term business funding funds a company's day-to-day activities, such as inventory purchases or payroll payments. Lines of credit, term loans, invoice finance, and merchant cash advances are common sources of working capital for small businesses (MCAs).
1. National Funding
A small company loan of $5,000 to $500,000 is available from National Funding. You might be able to get your money within 24 hours if you're lucky. National Funding offers daily or weekly payments for repayment lengths ranging from four to twenty-four months. The rates of National Funding are not made public.
2. PayPal Working Capital loans
Depending on the loan amount, borrowers can expect to pay back their loan over 13 to 52 weeks, with payments ranging from $5,000 to $500,000. Using PayPal Working Capital, business owners can earn an advance on future transactions by using the service to make and accept payments. If you're considering a PayPal loan, also known as a LoanBuilder loan, you may get an idea of how much it might cost by using LoanBuilder.
3. OnDeck
In addition to short-term loans ranging from $5,000 to $250,000, OnDeck offers a small business line of credit for businesses. It offers a 12-month line of credit for amounts ranging from $6,000 to $100,000. Payments would come out of your business checking account every week. An OnDeck line of credit has an APR ranging from 35.90% to 39.90%.
4. Fundbox
The maximum credit limit for a Fundbox account is $150,000. Even while the corporation is looking for $50,000 a year in revenue, it may approve borrowers with less than that. For a repayment plan lasting 12 weeks, the interest rate is 4.66 percent.
5. Uplift Capital
From $3,000 to $5000, Uplift offers advances at four different tiers. The company uses factor rates to determine its borrowing expenses. Between 1.24 and 1.40, Uplift factor rates are available based on borrowed money. Multiply the advance amount by the factor rate to get an idea of how much an MCA would cost. For example, an Uplift advance of $500,000 starts at $120,000.
