As a business owner, it can feel like you have the weight of the world on your shoulders, but a working capital loan can help you find extra funding when your company needs a helping hand. A working capital loan is a different kind of small business loan that is specifically used to give your daily operations some extra financial help.
A working capital loan can be exactly what you need to take your business to the next level, from payroll support and supplies to emergency repairs and advertising campaigns.
These are our picks for the best working capital loans for 2020.
The 5 best working capital loans of 2020
- Best for Bad Credit: Kabbage
- Best for Small- and Medium-Sized Businesses: Fundation
- Best for Veterans: StreetShares
- Best for Startups: Accion
- Best for Online Businesses: PayPal Working Capital
The best working capital loans at a glance
| APR | Loan Amount | Terms | Minimum Credit Score | |
|---|---|---|---|---|
| Kabbage | 1.25%–10% | $2,000–$250,000 | 6, 12 or 18 months | 560 |
| Fundation | 7.99%–29.99% | $20,000–$500,000 | 12–48 months | 620 |
| StreetShares | 7%–39% | $2,000–$250,000 | 3–36 months | 600 |
| Accion | 7%–34% | $300–$1M | Up to 25 years | 575 |
| PayPal Working Capital | 10%–30% of daily business sales plus flat fee | Up to 30% of sales or up to $125,000 | Daily repayment | N/A |
Rates accurate as of July 22, 2020.
Best for bad credit
Kabbage is a great choice if you have poor credit but watch out for high repayment fees.
2.8
-
APR1
-
Loan Size3
-
Product Variety2
-
Resources5
-
Fees3
Our Two Cents — With an online application and fast funding, Kabbage could be the quick working capital loan that you need for your business.
Best for small- and medium-sized businesses
If you’ve been in business for more than two years, Fundation can give you a quick financial boost to keep going.
3.2
-
APR3
-
Loan Size4
-
Product Variety2
-
Resources4
-
Fees3
Our Two Cents — Fundation is a good option for small- and medium-sized businesses to lay the foundation to turn your business into a large-scale company.
Best for veterans
StreetShares offers newer business owners the chance for extra capital with special consideration for military members.
3.8
-
APR3
-
Loan Size3
-
Product Variety5
-
Resources5
-
Fees3
Our Two Cents — A military-first focus and flexible loan amounts make Street Shares a great pick if you have a newer business. After all, it’s important to share the wealth.
Best for new businesses
Accion offers the largest working capital loans for startups to get the engine going.
Our Two Cents — Accion is a champion for new businesses and startups, whether you need to expand your portfolio or hire new employees to keep growing.
Best for online sales
PayPal offers a uniquely designed lending solution for your online business.
3.6
-
APRN/A
-
Loan SizeN/A
-
Product Variety2
-
Resources5
-
Fees4
Our Two Cents — PayPal offers a new kind of loan structure that is based on your sales, and as the frontrunner of online sales, it makes sense for businesses who use the service already.
What is a working capital loan?
There are times when a business needs extra cash. Sales could be down, or your equity could be tied up in assets. Either way, a working capital loan can get you the cash you need quickly. These funds are designed to cover your daily expenses, like payroll, supplies and utilities. This is a different loan from the one you would use to purchase equipment or real estate because this is cash to keep your business operating.
Working capital loans are generally smaller than other kinds of business loans, so they can also hold shorter terms and sometimes higher rates. Repayment can vary significantly, from terms that stretch over several years to daily payments that use a percentage of your daily sales.
How should I choose the right working capital loan?
When you look for a working capital loan for your business, there’s more to consider than just the amount that you need. Carefully consider your ability to repay the loan. Is it better to take a smaller loan that can be paid off quickly, or do you need an extended repayment term that gives you more time to grow your sales? There are also companies like PayPal that allow you to repay your loan through your daily sales.
The eligibility requirements and application process are important, as well. Many companies, such as our picks here, allow for online applications and fast turnaround for funding.
[Read: Small Businesses Can Apply For PPP Loans Again Thanks to a Second Round of Funding]
When to use a working capital loan
There are many reasons why your business may need a working capital loan. You may have fallen behind on your bills or need extra supplies for an upcoming busy season. The loan can help you make payroll next month or float your seasonal business during a quiet off-season. Another popular use for a working capital loan is for marketing or advertising that can raise your exposure and boost your sales. There may also be times when you need to take emergency precautions or deal with unexpected expenses that can affect your sales.
The beauty of a working capital loan is that it is available in smaller amounts, so you won’t have to mortgage the house in order to keep your business afloat.
How to apply for a working capital loan
- Determine how much you need. While there are many lenders who offer working capital loans, not all of them will offer the kind of terms that you need. Consider not only how much you need but how much you will be able to pay back, because interest will cause your total loan to exceed the actual borrowed amount.
- Be prepared. Before you apply, check your credit score to see where you stand. Your credit score and annual sales will be key determinants in whether you are approved for your loan, so gather all of the documents you will need. This includes everything from your credit report and bank statements to balance statements and tax returns. It is a lot of information that lenders will certainly require.
- Shop your options carefully. There are so many options out there for a working capital loan, but they will not all fit the distinct needs of your business. When you are looking for a lender, the loan terms and amounts will determine whether each company will work for you. Consider the eligibility requirements, as well as the application process and turnaround time for funding. Every bank has different requirements for how much you can qualify for and how long you will pay it back.
- Start the application process. Some companies allow you to apply online while others require you to apply over the phone or in-person at a branch. Many of our picks for the best working capital loans have fast, easy applications that can be completed entirely online, saving you countless hours and travel. You can also receive all of your documents and forms online for easy, secure processing that gets you your funding that much faster.
Too long, didn’t read?
A working capital loan can be an invaluable lifeline for your business, but if you are not careful, it can deeply harm your business. It’s important to remember that no matter how much you borrow, you will be responsible for paying it back with interest, and that interest will only continue to accumulate over time.
Keep reading
- A Loan to Build a Dream On: Where to Find Small Business Funding
- Best Bad Credit Business Loans for 2020
- Finding Startup Business Loans
Methodology
The SimpleScore is our proprietary scoring metric to compare products and services at The Simple Dollar in a transparent, evidence-based way. Our editorial team identifies five quantifiable aspects to compare for every brand, determines the rating criteria for each aspect score, then averages the five aspect scores to produce a single SimpleScore. For working capital loans loans, we compared interest rates, product variety, loan amounts, resources and fees for every major lender. Our ratings are meant to be a directional tool to help you in the process of choosing a working capital loan provider. Be sure to continue your research and shop around for the best working capital loan that fits your specific needs.
We welcome your feedback on this article and would love to hear about your experience with the business loans we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.
