Best Working Capital Loans in 2024

What are the requirements to qualify for a working capital loan?

Most working capital loan lenders look for:

• 3+ years in business (this isn’t always the case, but will drastically improve your chances of getting a loan)
• A good business credit score
• A good personal credit score (usually 600+ required)
• A plan or proof that sales are on the way – if you’re waiting for invoices to be paid, even better

You may be asked to put up collateral for a working capital loan, which is an asset the lender can seize and sell if you fail to keep up on your repayments. This is usually property, inventory, equipment, or vehicles, but may include intangible assets.

A personal guarantee may also be required. This will make you legally responsible for the loan, rather than your business, if you fail to keep up repayments.

How much working capital does my small business need?

In the simplest of terms, you simply need enough assets that they exceed your liabilities.

For example, if you have $100,000 in assets and $70,000 in liabilities, your working capital should be $30,000 to stay in the green for the next year. That said, the more you have the better to ensure you don’t suffer shortfalls.

How is a working capital loan amount determined?

How much you’ll be offered for a working capital loan depends on your revenue, how much debt you have, if you have accounts receivable you are waiting for, your credit score, your monthly liabilities (outgoings), and whether or not the loan will be secured.

Are working capital loans a good idea?

Working capital loans have to be handled carefully. They can be a good idea, but they can also sink you into a hole you’ll struggle to get out of.

They’re a good idea if you have a short-term financial need you know, with relative certainty, will change. For example, it’s coming up to the holidays and you need more capital to purchase additional inventory for a big sale. Another good reason would be if you’ve recently invoiced clients on net-30 or net-60 terms, and you need a way to cover your expenses until those invoices are paid.

They’re not a good idea when your business is struggling, and you’re not sure why, or when that will change. The worst thing you can do in a bad financial situation is sink more money into it. If you can, think about how you can change what you’re doing, offer a new service or product. Seth Godin said, “When in doubt, raise money from your customers by selling them something they truly need.” Try to heed these words if you’re experiencing financial difficulty and think laterally.

How to get a working capital loan

Getting a working capital loan is relatively simple. You need to:

1. Sit down and look at your company’s financial situation and figure out when you believe you’ll get the money you’re waiting for (such as a sale, invoices paid, a launch of a new product or service, and so on). Make sure you understand what non-negotiable expenses you have to cover in that period. Ideally, prepare your financial documents so you can share them with potential lenders.
2. Check your creditworthiness – know your score and your business’s credit score.
3. Do your research and decide which type of loan will work best for you. Can you take advantage of invoice financing, or are you better off looking into a merchant cash advance?
4. Compare lenders and rates and find those that look like they’ll be a good fit. Look at their terms and find out what documentation they want to see.
5. Get your documentation together.
6. Apply to the lender you most want to work with. Remember not to rush this process and take your time to find the right lender. Going into this process with your eyes open will set you up for success.

Apply for a working capital loan

Have you decided a working capital loan is the right next step for your business? Make sure you’ve chosen the right type of loan for you and compare the rates of the best working capital loans here. When you find one that looks to be the right fit, it’s time to apply. You’ll soon have the funding that can help bridge the gap in your cash flow so your business can find success.