Small Business Brief

Financial Services

How to Get a Working Capital Loan For Your Small Business

How to Get a Working Capital Loan

Are you concerned about getting a working capital loan for your small business? Not sure about the process? Read on to find out how it’s done.

17% of working capital loans cover expenses tied up in receivables. 19%, businesses use to fix and buy much-needed equipment, 20% to expand facilities and 40% need the money just to cover daily expenses.

Whatever the needs, they are pressing. Not meeting them means leaving money on the table because you can’t fill orders.

A working capital loan helps you keep on with business as usual despite the inevitable ups and downs.

Let’s explore how to get these life-blood loans when you need them most.

What Is Working Capital?

Your net working capital is your assets minus liabilities. The SBA defines these assets are your most liquid assets like cash.

When it’s flowing, you have no trouble paying your employees, buying inventory, promoting consistently and keeping the lights on. But when it’s low, you’re pinching every penny and having to make tough choices.

Often lenders require high collateral, making it difficult for lean startups small businesses alike. Traditional lenders may but strict guidelines on the loan like having it paid pack by a certain data no matter what.

For small businesses that face greater volatility, these kinds of promises are hard to make. Other lenders like Express Capital Funding understand small business needs and are there to help.

Common Types of Working Capital Loans

Depending on your unique small business need, you might find a certain type of working capital loan most advantageous. It’s important to be open and honest with your lender regarding your needs so that you can get the loan that’s right for you.

Let’s take a look at some common types. You may be surprised at just how well some of these meet real small business needs.

Bank Overdraft Credit Line

Borrowers just pay interest on the amount overdrawn. Usually, it’s a low 1-2% over the lender’s prime rate rather than some large overdraft fee like you might get from your bank. Pay for what you use and nothing more.

Short Term Loan

These are generally secured loans. But you may be able to get an unsecured working capital loan if you have excellent credit and agree to pay it back quickly.

The interest rate is fixed so you know exactly what you’ll pay for the term of the loan.

Seasonal fluctuations? Need to complete a big project? Buying inventory? Short term loans are the answer.

Equity Funding (SharkTank-Style)

You can get working capital loans from family, friends or professional investors by giving up equity. These are great for people who have a great business that people can get behind but don’t have excellent credit to get traditional loans.

Accounts Receivable Loans

You’ve already done the work or delivered the goods. You’re just waiting for payment to come through. This working capital loan helps you keep things running while payments come in.

You may be limited on how much you can borrow at first but as you build a strong track record of collecting receivables and paying the debt, the amount you can borrow will increase.


If you take credit cards, you may qualify for advances based upon future business. You pay a nominal rate to have access to money now. The lender knows based on your history that you’ll earn it later and be able to pay the debt.

Trade Credits

You’re very aware of this one but it’s worth mentioning anyway. Do you have established relationships with your larger vendors such that you’re making them lots of money?

If so, you can often work on a short-term payment plan that allows you to receive the goods, earn money and then pay them over 30, 60 or 90 days. Often these larger vendors are better able to carry the weight for a short time while they ensure the sale.

It’s mutually beneficial.

Where to Get a Working Capital Loan

At one time the big banks were the place to get business loans. Terms were decent and rates were low. But this largely changed after the “financial crisis”. Banks are requiring larger collateral, better credit history and denying businesses who need funds to survive.

If you do qualify, the terms are often ridiculous — not in your favor.

Big banks are looking out for themselves. They’re often not willing to look at all of the great potential in a small business.

This may require you to think outside the box and work with a company that may not be a household name like JP Morgan Chase or Wells Fargo.

Screening Potential Lenders

Because they’re not household names, you’ll do a little more legwork. But it’s totally worth it. You’ll get money faster with better terms, saving you so much time, money and hassle in the long run.

Read reviews. Read some of the good ones and the bad ones. Realize that all companies get a bad review sometimes. What’s important is that they learn from it and always strive to do what’s best for the customer.

Consider your unique needs. Does a certain lender seem more experienced in what you need? Are they easy to work with?

Compare terms. Some lenders will try to give you upwards of a 50% interest rate. These kinds of companies are just trying to get as much out of you as they can before you go under. They’re betting on your failure — not your success.

They’ll tell you that it’s based on your credit and risk. No small business can survive long-term taking these kinds of loans.

If you have bad credit or few assets, your rate may be a bit higher than you’d like. But make sure you’re shopping around so you don’t get hosed. That is unless you’re lucky and find the perfect lender first time around.

Small Business Loans Are Just The Beginning

As a small business, you have unique needs. Cash flow can go up and down. You may have to weather a seasonal slump or await payment for work already completed.

During these times a working capital loan may be exactly what you need. But it’s important to consider your unique business needs, what type of lender will work best for you and what terms they can offer.

Ultimately, do your homework and don’t settle for a sub-par loan when you don’t have to.

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