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Page written by Chris Godfrey. Last reviewed on February 17, 2025. Next review due October 1, 2026.
From paying employees to purchasing inventory, every business needs a steady cash flow to manage daily operations. Working capital loans can provide short-term financing to cover all types of business expenses and smooth away uneven income. Never experience a cash shortfall again.
Working capital is the difference between an organization’s current assets (such as cash, accounts receivable, and inventory) and its current liabilities (such as accounts payable and short-term debt). The difference can indicate the financial health and liquidity of your business. While positive working capital suggests your company can meet its immediate obligations, negative working capital may flag potential financial difficulties.
Company’s total current assets: $2,000,000
Less:
Company’s total current liabilities: $1,350,000
Result:
Positive working capital of $650,000
Efficient management of working capital ensures smooth operations, improves cash flow, and can enhance profitability.
Working capital loans provide short-term financing to cover daily operational expenses such as payroll, rent, and inventory.
Common working capital loans include:
A business line of credit functions like a high-value credit card but comes with lower interest rates and fees. Organizations can withdraw as much as they want when they want from a loan facility up to the limit of their borrowing. Interest rates are usually fixed, and businesses may repay on a set or ad-hoc schedule. This kind of loan is ideal for organizations that want maximum flexibility or for investment situations where the total cash required is unknown. Collateral or a personal guarantee may be required.
An SBA loan is a loan that is issued and partially backed by the US Small Business Administration (SBA). The SBA helps small businesses gain access to the capital they need to start, grow, and expand their operations. SBA loans typically come with competitive interest rates and long repayment terms, with some loans specifically designed to support minorities and groups who traditionally encounter difficulty obtaining regular business financing.
There are several types of SBA loan. Popular options include:
Instead of waiting 30, 60, 90 days or more to get paid, with invoice-factoring you sell your invoices to a lender and receive an immediate cash advance – typically 70% to 90% of the value of each invoice. The lender collects from your customers and as soon as they pay their bill, the lender transfers the remainder you are due after deducting their interest and fees. Your invoices act as collateral. No added security required.
Available for businesses that accept customer payments by credit and debit card. A merchant cash advance allows you to borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Pay the loan back with a fixed percentage of your card sales on a daily, weekly or monthly basis. Your sales act as security for the loan, no added collateral is required.
Working capital loans can be used to pay for almost anything to support your business. Typically used to bridge gaps in cash flow, cover business emergencies or take advantage of an unexpected opportunity, working capital loans can cover wages, rent, taxes, utilities, repairs, inventory, materials, marketing expenses and more.
Working capital loans have their advantages and disadvantages:
Obtaining a working capital loan is similar to applying for other types of business finance. Lenders will review your credit score (typically both personal and business) and ask for key business information.
Depending on the type of working capital loan you are seeking, you may need to provide:
Generally, the longer you’ve been in business and the better your credit score, the more you’ll be able to borrow and the less interest you’ll pay.
You can search for working capital loans by approaching banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will immediately introduce you to a choice of loans from a range of lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for borrowers who have never taken out a working capital loan before.
When comparing different working capital loans, it pays to consider the following factors:
Ultimately, you should select a loan that gives you the best balance of these factors. Never take out a loan that you cannot comfortably repay.
If a working capital loan is not for you, there may be other ways to obtain the funds you need:
With a business term loan, you receive a single, lump-sum cash injection that you pay back in regular instalments, plus interest and any fees, over a fixed period of up to 25 years. Instalments may be weekly, monthly or quarterly depending on the type of business you operate. Collateral or a personal guarantee may be required.
Equipment loans allow you to borrow a sum of cash to buy the equipment and then repay it over time. Interest charges and fees are added to the principal amount you borrow, while the lender retains a lien on the machinery during the term of the loan. At contract end you’ve paid off the loan and you own the equipment outright. The equipment acts as collateral. No added security is required.
Commercial real estate loans can be used to buy, construct, or develop business property and land. Popular loans include:
Interest rates vary according to the type of working capital loan you choose and if it is secured or unsecured. (Secured loans usually come with lower interest rates and fees). Current rates range from 9.9% representative APR for business credit cards, anywhere from 1.8% – 45% with term loans, and as low as 0.6% if you opt for invoice financing.
Use our simple working capital calculator to find out how much you may be able to borrow and what your loan may cost in fees and interest charges.
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This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
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A term loan is a lump sum of borrowed cash that is paid back with regular payments over a fixed period. Technically, this is a working capital loan. However, because the loan is not flexible, (after receipt of the initial lump sum, the borrower cannot re-borrow the same cash again and again like a line of credit), some lenders and borrowers class term loans differently. Additionally, most working capital loans are short-term, usually repaying in a year or less, whereas term loans can be repaid over much longer periods – anywhere from one to thirty years.
Yes. There are working capital loans for all type of business and with good credit or bad. Even if you’ve been turned down elsewhere, it may still be possible to obtain the financing your business needs to succeed. Register with Swoop to discover more about our working capital loans for businesses with bad credit or even no credit at all.
Read more: our guide to getting a business loan with bad credit.
Yes. There are specialist working capital loans for startups, and an array of borrowing options for small businesses and sole traders. No matter what type of industry you operate in, if you’re just beginning your entrepreneurial journey, or your small business has decades behind it, there’s a working capital loan to suit your needs.
Working capital loans can be obtained with or without providing collateral. Some loan products, such as business credit cards, can usually be obtained unsecured, others, such as merchant cash advances, have security built-in as they are based on the borrower’s customer credit card transactions. Business lines of credit and term loans may or may not require collateral. Your company’s financial history, the amount you wish to borrow and the type of loan you choose will determine if security is required or not.
The documentation required to obtain a working capital loan will vary according to the amount you wish to borrow and the type of business you operate. Some of the more routinely required documents include:
The type of loan you are seeking will also have impact on the documentation you must supply – for example, a merchant cash advance will require different paperwork than a business line of credit. Lastly, lenders will conduct a credit check on your business and possibly the business owner(s).
No matter if your business is a startup or an established small business, or if it operates in retail, manufacturing, construction, automotive, farming, transport, or a myriad of other industries, it is almost certainly eligible for a working capital loan. Additionally, organisations with seasonal sales periods or that offer extended credit to their customers are ideally situated for this type of financial support. Register with Swoop to discover what type of working capital loan your business is best qualified for.
No matter if you’re seeking your first working capital loan or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality business loans from a choice of lenders. Give your cash flow the boost it deserves. Register with Swoop today.
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.
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