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Best Funding for Your Business 2017: Working Capital Loans

Working capital loans are a great way to get funding so your business can buy inventory items, cover payroll, improve marketing, and finance daily operations for small businesses. Here we discuss the different types of working capital loans your business can take advantage of.

In the following table, we have an overview of the types as well as the best company you can go with based on our extensive reviews. We have a more in-depth overview of each option after the table, discussing the best working capital loans and what each entails.

Short Term Business Loan


Credit Score: 500+

Business Revenue: $100K+ Annually

Business Age: 1+ Year

Terms for Funding

Loan Amounts: Up to $500K

Funding Speed: 1 – 3 days

APR: 30% – 50%

Best For

Businesses that need immediate working capital and are able to pay back the loan in less than 1 year.

Merchant Cash Advance


Credit Score: 500+

Business Revenue: $2,500+ in monthly credit card sales

Business Age: 3+ Months

Terms for Funding

Loan Amounts: Up to $500K

Funding Speed: 1 – 3 days

APR: 70% – 90%

Best For

Businesses whose borrowers have poor credit but get paid via credit card very quickly. It’s advised as a last resort because it’s one of the most expensive loan options.

Peer-to-Peer Business


Credit Score: 650+

Business Revenue: $25,000+

Business Age: 1+ Year

Terms for Funding

Loan Amounts: Up to $500K

Funding Speed: 1 week

APR: 10% – 40%

Best For

Borrowers whose credit profile is great, looking for working capital so they can grow their business quickly. Has better rates and terms compared to short term lending.

Invoice Financing / AR


Credit Score: N/A

Business Revenue: N/A

Business Age: 2+ Years

Terms for Funding

Loan Amounts: $10K+ per month

Funding Speed: 1 – 3 days


Best For

Businesses with unpaid B2B or B2G invoices that are due within the next 90 days.

Small Business Credit Cards


Credit Score: 660+

Business Revenue: N/A

Business Age: None

Terms for Funding

Loan Amounts: Varies by revenue and credit score

Funding Speed: 1 day

APR: 13% – 20%

Best For

Borrowers who need small funding amounts quickly, or looking for reserve credit lines in case of emergencies and unexpected events.

SBA and Traditional Bank Loans


Credit Score: 680+

Business Revenue: Varies: 10% – 20% down payment

Business Age: 2+ Years

Terms for Funding

Loan Amounts: Up to $5,000,000

Funding Speed: 30 – 90 days

APR: 6% – 9%

Best For

Prime borrowers who have both a collateral and a 10% down payment, and can wait for 30 days or more to receive their funds.

Short-Term Working Capital Loans

Average Annual Interest Rate: 30% to 50%

Short-term working capital loans come from non-bank lending companies that can provide loans as much as $500,000 with terms that are typically only up to 3 years or less. For those who need a working capital loan and can pay it off within the first year, or for those who are not a prime borrower, these short-term working capital loans are a great option.

These short-term loans can fund you almost immediately, in as little as 1 business day. It’s one of the fastest business loan options available for small businesses. However, they also usually cost more compared to other loan options, with their annual percentage rate (APR) averaging anywhere between 30 to 50 percent. However, if you’re able to pay off the loan quickly, the total cost of your capital is essentially the same compared to loan options that have lower APRs but longer paying periods.

How to Know If a Short-Term Working Capital Loan Is Right for You

Generally speaking, a short-term capital loan is great for businesses that need working capital right away for things such as payroll funding or unexpected and emergency expenses. Business owners who are not prime borrowers, or lack collateral in order to secure other types of loans may also consider short term capital loans as a feasible option.

Who Can Qualify for a Short-Term Working Capital Loan

Businesses need to be in operation for at least 9 months before they can qualify with a short-term lender. In addition, you must also have at least 500 credit score and an annual business revenue of $50,000 or better

Pros of Getting a Short-Term Working Capital Loan

  • They can fund much faster compared to traditional commercial loans or a loan from the Small Business Administration (also known as SBA loans).
  • You can qualify even without great credit.
  • You can potentially get approved even if your business is only about a year old.

Cons of Getting a Short-Term Alternative Loan

  • APR is much higher than those in bank loans or other traditional loan financing (including SBA loans).
  • They require a personal guarantee, and most lenders will place a blanket lien on your personal assets. However, it should be noted that this is true of many other types of working capital loans as well.

Merchant Cash Advances

Average Annual Interest Rate: 60% to 80% or even higher

By definition, a merchant cash advance is when a business gets an advanced amount in lump sum from a lender, in exchange for a daily share of the business’s credit card sales. Compared to other financing options, your personal credit is not as important and having a collateral is typically not required. What’s important to your loan provider is how much revenue your business makes in a year from credit and debit card transactions.

Generally, most companies can pay back a merchant cash advance in as little as 4 months, up to 18 months. This is based entirely on your credit and debit card sales, as your repayment comes from a specified percentage of your daily card transaction receipts.

Although you can be funded in as quick as a day, remember that this is one of the most expensive sources of financing. It typically has an APR going from 60 to 80 percent! Because of this, merchant cash advances should be considered as a last resort.

How to Know If a Merchant Cash Advance Is Right for You

If you are a retail business, or you’re paid mostly via credit and debit cards, plus your credit score basically disqualifies you from most other types of financing, then merchant cash advances might be your best option. While we typically do not recommend this method due to its high cost and potentially high pressure on your finances, this option might still be worth considering if you have already exhausted other options and haven’t found a loan you qualify for.

Who Can Qualify for a Merchant Cash Advance

It’s required that your business can get at least $2,500 in credit and debit card sales each month for you to qualify for a merchant cash advance. In addition, your credit score should be at least 500 and your business should be at least 3 months in operation.

Pros of Getting Money Using a Merchant Cash Advance

  • You don’t need any collateral. All you need is having enough and consistent credit card and debit card sales.
  • You can qualify even with poor credit.
  • You can receive funds within 1 to 3 days.
  • You only pay in proportion to your credit card receipts, meaning even if your business is having a bad sales month, your payments could be lower for that month.

Cons of Getting Money Using a Merchant Cash Advance

  • It’s very costly and expensive at 60 to 80 percent APR.
  • Daily repayments can cause your business to have a cash flow strain if you’re reliant on your credit card receipts.

    Peer-to-Peer Business Loans

    Average Annual Interest Rate: 10% – 40%

    Peer-to-peer (P2P) business loans, in essence, are working capital loans funded by either a willing individual or an institutional investor via an online marketplace. These P2P business loan sites allow you to get online, enter basic personal and business information, and get loan quote in an instant. When approved, your funding comes in about 2 weeks or less. They work similar to short-term alternative loans, but the difference is that you have longer repayment terms and lower rates, but have higher minimum requirements to qualify.

    How to Know If a Peer-to-Peer Business Loan Is Right for You

    If you’re on the lookout for quick financing and you happen to have good credit, P2P business loans may be the best option for your business. This type of loan is great for borrowers who do not want to deal with the fuss of applying for an SBA loan but could probably qualify for one if they did. P2P business loan companies aren’t recommended if you are looking for a bad credit loan.

    Who Can Qualify for Peer-to-Peer Business Loans

    Although it’s easier to qualify for a marketplace loan in comparison to an SBA loan or traditional commercial loan, it’s still required of you to have a good credit profile (at least 600). You also need to be an established business that generates a decent amount of revenue.

    Pros of Getting a Peer-to-Peer Business Loan

    • You can get affordable capital quickly in just 1 to 2 weeks.
    • You can apply even with a lower credit score (600+) compared to applying for an SBA or traditional bank loan.

    Cons of Getting a Peer-to-Peer Business Loan

    • Loan amounts are lower compared to SBA loans or traditional bank loans.
    • You get higher interest rates and lower repayment terms than SBA loans or traditional bank loans.

        Invoice Financing / AR Financing

        Average Annual Interest Rate: 30% – 60%

        Invoice financing, also known as accounts receivable (AR) financing, allows small businesses to convert their outstanding invoices into capital (for a fee). Essentially, rather than waiting to collect on future fees, AR financing allows your business to get a working capital right away. This method is a quick and flexible way to bridge cash flow gaps and get a short-term business line of credit. Through AR financing, you can get funds for unpaid customer invoices due in the next 90 days.

        AR financing is very similar to invoice factoring, but it’s faster and more flexible. Note that invoice factoring is only a good solution if you want to outsource your business’s entire accounts receivable process. IR financing is a better option if all you need is a short-term fix for a cash flow gap your business is experiencing.

        How to Know If Invoice Financing Is Right for You

        Invoice or IR financing is a great option for businesses who have unpaid invoices due within the next 3 months (30, 60, or 90 days) who need to fund a short-term cash flow gap.

        Who Can Qualify for Invoice Financing

        To qualify for IR financing, your business needs to have unpaid customer invoices due within the next 90 days. You also have to be operating for at least 3 months. Some providers require you to have a credit score of 530 or more, although there are others that do not need a minimum credit score.

        Pros of Using Invoice Financing

        • You can get your funding really quick.
        • The minimum credit score is low, or sometimes not required, depending on the provider.

        Cons of Using Invoice Financing

        • IR financing is only available to companies that invoice their customers.
        • The overall cost can become more expensive than other financing if you don’t pay funds back quickly.
        • Your business must have customers who reliably their invoices for at least a few months.

              Small Business Credit Cards

              Average Annual Interest Rate: 15% (some credit cards also have an annual fee)

              While credit cards often have a reputation for being an expensive way to get financed, it’s estimated that about 37 percent of small business owners use credit as their source of capital. The reason behind this is that credit cards are in fact a relatively inexpensive form of financing when compared to other loan options for small businesses. In addition, credit cards can also offer a number of benefits, including cash back on purchases as well as earning travel rewards.

              On average, interest rates are about 15% with some companies even offering 0% interest for a limited time as a promotional incentive (usually lasting 1 year from subscription). Technically speaking, you could borrow for free on a credit card if you accumulate and pay off that balance before the end of the promotional 0% interest period given.

              A credit card could also allow you to transfer high-interest debt to a credit card with lower interest via a balance transfer. In addition, if you’re using a credit card that has a rewards program, you can earn points or cashback each time you use that card. The best credit cards for small businesses offer both promotional rates and a form of reward system.

              Credit cards usually work best for regular operating expenses. You can even give them to key employees to cover work-related expenses. In fact, you don’t need a corporate credit card to issue credit cards to your employees. However, it’s recommended you put a company credit card policy to avoid abuse.

              How to Know If a Small Business Credit Card Is Right for You

              Small business credit cards are a good working capital option in general, but they are especially great for newer businesses who do not yet qualify for other financing options. Cards could also be great for businesses that want to take advantage of no-APR introductory periods so you technically get free short-term financing, provided you can pay it all off before the period ends.

              Who Can Qualify for Small Business Credit Cards

              Generally speaking, you’ll need a credit score of at least 660 before you qualify for a good credit card. In addition, while your revenue and business age isn’t as important to qualify, it may impact your potential credit line.

              Pros of Small Business Credit Cards

              • Credit cards have relatively low interest rates than many other types of financing.
              • Getting a business credit card is quick and easy.
              • If your card has a rewards program, you earn cashback or rewards points each time you use your card.
              • You can use 0% APR promotions to get free financing, provided you pay it all off before the promotional period ends.
              • You can lower costs by transferring your high-interest debt to your credit card using a balance transfer.

              Cons of Credit Card Financing

              • The financing amount you get is much less compared to other forms of financing.
              • If you can’t pay your balance in full each month, your balances can pile up and interest can increase.

              You must have a personal credit score that’s 660 or better to qualify for the best credit cards.

                    SBA Loans and Traditional Bank Loans

                    Average Annual Interest Rate: 6% – 9%

                    Small Business Administration (SBA) loans usually have the lowest rates and longest terms of any working capital options, making them one of the most affordable month-to-month. The reason these loans can have such favorable terms because the SBA guarantees that it will pay the lender up to 85% of the loan if the business owner defaults. To make it clear, it is not the SBA that actually provides these loans – rather, it’s lending partners that actually issue the loans. These SBA lending partners include banks, community development organizations, and microlending institutions.

                    There are many types of SBA loans available, but the most commonly used is the standard 7a loan. This loan can be used for working capital, buying a franchise or a business, for refinancing debt, to get real estate for your business, and many other valid business purposes. You’re allowed to borrow up to $5 million using the 7a loan, and the standard repayment term is 10 years. The SBA 504/CDC loans are also available for borrowers, specifically those who want to buy commercial real estate, equipment, or machinery.

                    Most traditional banks offer a lot of loans, including SBA loans, so businesses can get the financing they need to establish and run their company. Most of these loans, however, are for prime borrowers with an established business, and would often require some collateral to secure the loan.

                    Whether you’re going with a 7a or a 504/CDC loan, it’s most likely your cheapest solution as they offer the longest repayment periods. However, they take much longer to fund compared to all your other options, as you have to wait for 30 to 90 days.

                    How to Know If an SBA Loan Is Right for You

                    Both SBA loans and traditional bank loans are great for prime borrowers who can wait for 30 to 90 days to receive funds. As these loans have the lowest rates and the longest repayment terms, they’re great if you qualify and you can wait to receive your funding in 1 to 3 months. In fact, even SBA Express Loans (funds under $350K) need about a month or so before funding is released.

                    Who Can Qualify for an SBA Loan

                    Before you qualify for an SBA loan or traditional bank loan, you’ll need some (or all) of the following requirements:

                    • Credit score of 680 or better
                    • 2+ years in business
                    • Be a profitable business trending upward
                    • 10-20% down payment

                    Pros of Getting an SBA Loan

                    • This has the lowest interest rates of all financing options, averaging 6 to 9 percent.
                    • This typically has the longest terms of all financing options, usually up to 10 years.
                    • You get low monthly payments.

                    Cons of Getting an SBA Loan

                    • Only an option if you are a prime borrower.
                    • It may require a large amount of collateral.
                    • It takes the longest amount of time to get funded (30 to 90 days).

                          Working Capital Loans: A Conclusion

                          For growing businesses, a working capital is critical to its existence and survival. In this article, we have discussed the best options your business might need. The bottom line here is to find the service that suits your situation. You can find even more information from our catalog of articles covering the A to Zs of financing your small business.