There are a few key things you need to know in order to get working capital loans for a small business. The first is that you need to have a strong credit score. This is because working capital loans are typically given out by banks and other financial institutions. They will want to see that you have a good history of making payments on time and that you have the ability to repay the loan.

Another thing to keep in mind is that working capital loans are usually given in lump sums. This means that you will need to have a plan for how you will use the money. It is important to remember that these loans should be used for things like inventory or equipment, not for personal expenses.

Finally, it is important to know that working capital loans can be either secured or unsecured.

Working capital loans

A working capital loan is a type of small business loan that can be used to finance day-to-day operations. Working capital loans are typically short-term, with repayment periods of one year or less.

A working capital loan is a form of loan that enables companies to borrow money for regular needs like rent, payroll, operating costs, or just to balance cash flow during slow periods. They have brief repayment periods of typically 6 to 18 months. Working capital loans may be available for as little as $5,000 or as much as $500,000, or more, depending on the lender.

The SBA has a special loan program just for working capital. It’s called an SBA 7a loan. You can get an SBA 7a loan all the way up to $5 million.

These loans are often harder to qualify for but they make up for it with the terms of the loan. For example, you may get a longer payback period, lower interest rates, and a higher loan.

Make sure you work with an experienced commercial loan advisor to understand all of your options.

Why get a working capital loan?

A working capital loan finances a company's ongoing operations, such as paying rent, salaries, and any outstanding debts, as well as other regular costs. In contrast to other kinds of business loans, they are utilized to meet the company's immediate financial demands rather than for long-term assets or investments.

Working capital loans are short-term in nature.

Working capital is essentially the money you use every day, and business owners must manage it well to make sure they have enough money to cover their costs and commitments.

They will need to find another way to cover these costs if they fail to do so or experience a time of low earnings. While some business owners decide to reduce expenses in other parts of their company to allocate funds to working capital, others decide to take out working capital loans to pay their bills while they wait for their more lucrative months.

Compared to other forms of credit, working capital loans have shorter repayment periods—usually 6 to 18 months. Due to the short-term nature of the lending, they also have lower interest rates, however depending on the lender, you could need to provide collateral.

Before approving you for funding, lenders will also check to see what you intend to do with the money. They may not approve you for a small business working capital loan or may suggest another financing option if you intend to utilize the money for business purposes other than urgent matters.

If you’re not sure, be sure to consult with an experienced commercial loan advisor.

Secured vs. Unsecured working capital loans

Working capital loans are divided by lenders into two subcategories: secured and unsecured.

Loans for secured working capital – Prior to receiving cash for a secured working capital loan, you must pledge an asset as security. If you don't pay back the loan, the lender will seize the asset to get their money back.

Secured loans are a wonderful choice for any business owner who is confident they can return the loan within the time period of the loan and because they typically have lower interest rates (because they require collateral).

Unsecured loans for working capital – An unsecured working capital loan, unlike its secured equivalent, won't demand that you put up property as collateral. This option typically carries higher interest rates and stricter eligibility requirements because the lender is taking on a higher level of risk by not demanding collateral, despite the fact that it can initially seem enticing.

If you can demonstrate a healthy cash flow and a strong business strategy, some lenders might cut your interest rate; however, other lenders might not. To select a company with terms that suit your organization's needs, chat with several lenders and evaluate their programs.

Again, if you’re not sure, be sure to consult with an experienced commercial loan advisor.

Because they don't want to put up an asset as collateral, many business owners avoid secured working capital loans. However, these same people might have trouble locating a lender who provides an unsecured loan within their parameters, which could cause their search for funding to take longer.

Because conducting research takes time, which business owners sometimes lack, many entrepreneurs decide to work with an experienced commercial loan advisor.

Working capital loans offer a capital infusion to get you started, especially if your company deals with cyclical or seasonal sales. A working capital loan can prevent you from sacrificing your company's growth for sustainability, which is a rare chance, rather than cutting cuts from other parts of your operations.

Since every industry occasionally experiences a decline in sales, large enterprises also utilize working capital loans. Larger organizations would often seek financing solutions with higher borrowing thresholds.

Regardless of your company's size, length of operation, or monthly revenue, working capital loans can help you control operating costs and provide you an advantage over rivals.

Book a call today with an experienced commercial loan advisor.