Any working capital loan worth its salt should deliver the money your business needs at a reasonable interest rate. The best working capital loans will do it fast, and offer flexible repayment terms on top of a rock-bottom APR. Like car insurance, however, the only way to find the best deal on a working capital loan for your business is to get multiple quotes. Loan rates and repayment terms are unique to each borrower, based on credit score, business income, and a host of other factors that each lender will weigh differently.
The Simple Dollar’s Top Picks for Best Working Capital Loans
- OnDeck: Best for Borrowing up to $500,000 at approximately 30-50% APR
- Kabbage: Best for Bad Credit
- Fundation: Best for Borrowing up to $150,000 at 7.99-29.99% APR
- StreetShares: Best for Borrowing up to $100,000 at 8-40% APR
- Accion: Best for Startups
- PayPal Working Capital: Best for Online Businesses
The Best Working Capital Loans
OnDeck: Best for Borrowing up to $500,000 at approximately 30-50% APR
If your credit score is at least 600, OnDeck will likely be able to offer you the lowest interest rate. Its borrowing requirements aren’t quite as stringent as either Fundation or StreetShares, but it still offers competitive interest rates approximately 30-50% for a term loan. You can also potentially borrow nearly five times as much; up to $500,000. Borrowers need to have been in business at least 1 year, and have over $100,000 in annual revenue.
Unlike most other lenders, who offer monthly repayments, OnDeck requires either daily or weekly repayments with anywhere between three month to three year terms. This makes it a smart option for businesses with consistent cash flow, like restaurants and retail stores. It’s probably not a good idea to get a loan through OnDeck if your business’s revenue is more seasonal, though. OnDeck also charges a one-time origination fee of 2.5 percent to 4 percent, which is deducted from the loan proceeds.
Who it’s good for: If you need to borrow more than $100,000, but you don’t have a strong credit score, OnDeck is going to be your best choice.
Who should look elsewhere: Established businesses with good credit who can find lower APRs and more flexible repayment terms elsewhere. OnDeck has a restricted industry list, which puts certain limits on what kinds of businesses they’ll lend to.
Kabbage: Best for Bad Credit
Working capital loans from Kabbage are designed for business owners who need funding quickly, but may not have a well established credit history. Instead of looking at just your credit score, Kabbage reviews factors such as your revenue and shipping data to give you immediate access to a line of credit up to $150,000. To do this, it uses an automated, online application to assess your business performance within minutes. Keep in mind, though: you’ll be charged a relatively high interest rate between 32 and 108 percent, and if you have a low credit score due to poor money management and missed bill payments, you’ll still likely not be approved.
Repayment terms are either six months or over the course of a year. Instead of an interest rate, you’ll pay a monthly fee ranging anywhere from 1% to 12% of what you’ve borrowed, which can be anywhere from $1,000 to $150,000, as long as you’ve been in business for at least a year and you have $50,000 or more in annual revenue.
Who it’s good for: Kabbage loans are attractive for business owners who have less established credit, but strong performance indicators, like strong sales and shipping data.
Who should look elsewhere: If you don’t have any significant black marks on your credit, a different lender could offer you a better APR. The $150,000 cap on borrowing may be limiting for businesses that need more funding, too.
Fundation: Best for Borrowing up to $150,000 at 7.99-29.99% APR
Fundation works with already established businesses that need a rapid infusion of funds. To qualify, you have to have at least two years of business history, three or more employees, and annual revenues in excess of $100,000.
Businesses that meet these requirements may be able to borrow up to $150,000 in working capital, with a repayment term of one to two years. If you need more time to repay, Fundation also offers long-term loans of up to $500,000, which can be paid off in one to four years. Your loan is repaid through automatic debit twice a month. If you’re able to pay it off ahead of schedule, there’s no prepayment penalty.
Who it’s good for: Established businesses with two or more years of business history and solid financials that require working capital for large inventory purchases or other immediate cash flow needs.
Who should look elsewhere: Startups that have been in business for less than two years. Also, Fundation requires a UCC-1 blanket lien on your business assets in lieu of collateral, so if you’re not comfortable with that, you may want to consider another lender.
StreetShares: Best for Borrowing up to $100,000 at 8-40% APR
Unlike Fundation, which requires borrowers to have been in business for at least two years, StreetShares only requires one year of operating history. If your annual revenue is at least $100,000 and your credit score is over 600, you can borrow up to $100,000 through StreetShares, even if your business is relatively new. Repayment terms run from three months to three years. The online application only takes a few minutes and funding can be completed in as little as one to two days.
Who it’s good for: Newer businesses with at least one year of operating history and credit scores over 600.
Who should look elsewhere: StreetShares isn’t authorized to make loans in North Dakota or South Dakota, so if you have a business in either of those states, you’ll have to look for a loan elsewhere. Loans aren’t available for selected business types either, including tax preparers, accounting firms, or construction contractors.
Accion: Best for Startups
Accion is a non-profit organization that works to connect startups and established small businesses with financing. Startup loans are available to brand new businesses, with loans ranging from $10,000 to $100,000. The amount you can borrow depends on which state your business is located in. In North Carolina, for example, the limit is $10,000; while in Texas, it’s $100,000.
The APR range is moderate and Accion does accept borrowers with lower credit scores. (The minimum credit score requirement may be higher for larger loans.) You can’t have any active bankruptcies or foreclosures on your credit report in the previous 12 months, however.
If your business isn’t generating any revenue yet, you’ll need to show proof of another source of income. You’ll also need to offer some form of collateral or sign a personal guarantee for a loan.
Who it’s good for: Accion loans may be a good match if your business is less than six months old and you’re not getting any traction with a bank or another alternative lender.
Who should look elsewhere: Funding with an Accion loan can take longer than some of the other working capital lenders I’ve included. If you need cash ASAP, you may want to look into a personal loan or a peer-to-peer loan instead.
PayPal Working Capital: Best for Online Businesses
If you run an online business selling things on Etsy or you own an eBay store and you already have a PayPal Business account, PayPal Working Capital is designed with you in mind. You can borrow as much as 18% of your PayPal sales processed over the previous 12 months, up to $97,000.
You can get funding in minutes after approval, and your payments are deducted from your daily PayPal sales automatically. You set the percentage of sales you want to deduct when you apply and there’s no penalty if you don’t report any sales for the day.
You pay a one-time fixed fee for the loan, which is based on your annual sales and the percentage that you plan to pay back each day. The fee is higher when you commit a smaller percentage of sales each day.
Who it’s good for: PayPal Working Capital is a good option if you use PayPal as your primary method of accepting payment, or if you have poor credit and you don’t need to borrow more than 18% of your annual sales.
Who should look elsewhere: You must have a PayPal Business account and a minimum of $15,000 in payments processed through the site. If your PayPal sales volume isn’t that high, this one’s a dead end.
How I Found the Best Working Capital Loans
Here are the things I considered when determining the best working capital loan lenders:
- Funding time: A traditional bank loan or Small Business Administration loan can take weeks or even months to process. Each of my top picks make funding available without a long wait, so you can continue doing business as usual.
- Lending amount: Working capital needs vary from business to business, and there is no one-size-fits-all loan product. The best working capital lenders offer loans both large and small, with many of them topping out in the six-figure range.
- Approval requirements: The approval process for a working capital loan is different with every lender. I took into account things like minimum credit score, time in business, and annual revenue requirements during my research.
- Repayment terms: Flexibility is something that’s important to business owners, particularly when it comes to repaying a loan. Whether you need a shorter or longer repayment term ultimately depends on your business structure and cash flow.
- APR and fees: Virtually any time you borrow, there are going to be interest charges and fees involved. Before adding a working capital lender to the list, I looked closely at the fees and APR structure to make sure the terms were competitive.
- Loan use: Working capital loans can serve a number of purposes. When compiling my list, I considered how the loans would be used and which lenders would be appropriate for specific borrowing situations.
- Lender reputation: Finding a reputable lender to work with is important if you want to get the best deal possible on a working capital loan. As the final piece of the puzzle, I looked at each lender’s track record, as well as consumer reviews.
How to Choose the Right Working Capital Loan
Ask yourself these questions before taking on any loan, and make sure you know the answers:
- How much will this loan cost? As a business owner, minimizing costs is key to maintaining a healthy bottom line. If you’ve been prequalified for a working capital loan with multiple lenders, take the time to do the math on how the APR and fees add up before you commit. That’s particularly important if your credit score doesn’t qualify you for the very best rates.
- Will my current cash flow work with the repayment terms? Repaying a working capital loan could be problematic if the terms put too much of a strain on your cash flow. If you have a seasonal business, for example, you may find keeping up with the payments during slow periods more difficult.
- Would a long-term loan make more sense? Working capital loans are typically designed to be repaid in four years or less. If you need a loan that’s in the six-figure range, you have to ask yourself if the time frame involved is realistic. If it’s not, you may need to think about getting a long-term small business loan instead.
How to Apply for a Working Capital Loan
Once you’ve settled on a lender, the next step is filling out an application for a loan. Before you do that, however, it’s important to make sure you’re avoiding certain missteps that could tank your chances of approval. Here’s a brief checklist that can help you make your business as attractive as possible to lenders:
What You Should Do
- Make sure your credit’s up to par. Your personal credit score is a factor in whether you’re able to get approved for a working capital loan. If you haven’t checked your credit reports or score lately, give them a glance to see whether you meet the lender’s minimum credit requirements before you apply.
- Have your financial documents in order. When applying for a loan, the lender will ask to see things like your most recent balance sheet, cash flow statement, and income statement. If you don’t have these organized ahead of time, that can slow down the application process.
- Determine whether you need any collateral. Generally, working capital loans don’t require you to put up any collateral but you should double-check to be sure.
What to Avoid
- Don’t sign a personal guarantee without understanding what it means. When you sign a personal guarantee for a loan, you become personally liable for any debt your business incurs. If the business defaults, the lender could sue you personally to recover the loss, putting your assets at risk.
- Don’t borrow without a clearly defined purpose. When you apply for a working capital loan, the lender is going to want a detailed explanation of how the proceeds will be used. Before filling out the application, take time to map out an in-depth plan for what you intend to do with the money and how it will benefit your business in the long run.
- Don’t borrow more than you actually need. Since you’re going to be repaying a working capital loan with interest, your goal should be to keep the cost as low as possible. Borrowing more money than is necessary only adds to the interest total, so be sure the loan amount is tailored to your needs.
If You’re Considering a Conventional Loan
If you’re thinking of getting a loan from a bank, the criteria for choosing a lender don’t vary much. Again, you should be looking at the rates and fees, as well as how much you’re able to borrow, and how long you have to pay it back. One important difference to take note of is the credit requirements.
An online lender may put more emphasis on your business’s track record and revenues than your credit rating when you apply for a working capital loan. A bank, on the other hand, is going to want to see a higher personal and/or business credit score as a condition of approval.
If you haven’t taken the time to register with Dun & Bradstreet yet, that’s something to put on your to-do list as soon as possible. Once you obtain what’s known as a DUNs number, you can begin building your business credit profile, which can help you with establishing lines of credit with vendors or obtaining other types of business financing.
The Bottom Line
If you already have established good credit and you’re not in a rush to receive funds, apply through your local bank or credit union first. Traditional lenders will almost always offer the best rates and repayment terms, but they also require a lengthy application process and have strict borrowing requirements.
A working capital loan can be an ideal solution when your business has a temporary funding gap and time is of the essence. They offer the fastest and simplest application process, quick funds disbursement (sometimes within 48 hours), and are generally willing to lend to newer businesses with less established credit. But you should always do your own research before committing to a loan. Choosing the wrong lender could have negative implications for your business, so it’s vital that you take the time to consider your borrowing options carefully.