Having sufficient working capital is key to every successful business — it gives you the bandwidth to cover day-to-day expenses, plus the flexibility to invest in your company’s growth.
It’s wise to establish a line of credit with a bank before experiencing a cash-flow crunch, because banks offer the lowest financing rates. But if the bank says no or you need cash fast, alternative lenders can help you manage everyday expenses such as rent, payroll and debt payments so you can capitalize on opportunities to grow your business.
There are many options, so look for a business loan that best fits your particular business need. Here are our recommendations:
Working capital loans for everyday needs
Although the phrase “working capital” can encompass virtually any facet of your finances, at the end of the day you need working capital to, well, keep your company working. That could include coping with seasonal dips in revenue, covering maintenance costs, or keeping your payroll up to date.
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| • Bad personal credit • Fast cash |
• Good personal credit • Veterans • Newer businesses |
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| • No minimum credit score • 1+ year in business • $50,000+ annual revenue • Must have a business checking, payment platform or accounting software account |
• 600+ credit score • 1+ year in business • $25,000+ annual revenue |
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| $2,000 to $100,000 | $2,000 to $100,000 |
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| 32% to 108% | 8% to 40% |
If your credit is lacking, Kabbage offers quick working capital loans to help keep you afloat, though that convenience does come with APRs higher than some other online lenders.
StreetShares is a peer-to-peer lender that uses an affinity-group model to pair lenders and investors who have similar characteristics, such as gender, veteran status or geographic region. It also offers loans to businesses that are only a year old and earning at least $25,000, making it a good fit for newer businesses that are still building revenue.
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Working capital loans for inventory purchases
Ineffective inventory management is a primary reason businesses have lapses in available cash, says Will Katz, director of the Small Business Development Center at the University of Kansas. If you need to purchase a lot of inventory upfront that you won’t sell and profit from until weeks or months later, inventory financing is one solution.
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| • Bad personal credit • Businesses with strong cash flow • Retail or food service businesses |
• Good personal credit • Recurring inventory purchases • Businesses that want a line of credit |
• Good personal credit • Veterans • Newer businesses |
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| • 500+ personal credit score • 1+ year in business • $100,000+ annual revenue |
• 600+ credit score • 1+ year in business • $12,500+ monthly revenue |
• 600+ credit score • 1+ year in business • $25,000+ annual revenue |
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| $5,000 to $500,000 | Up to $500,000 |
$2,000 to $100,000 |
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| 9% to 98% | 11% to 22%, plus prime rate |
8% to 40% |
A line of credit from Dealstruck offers borrowing flexibility, allowing you to take what you need when making regular inventory purchases.
If your credit is lacking but you need inventory now, you may qualify for a term loan from OnDeck, which requires a personal credit score of at least 500 to access loans from $5,000 to $500,000. However, increased lending to lower credit score borrowers does drive up the company’s APRs. If you have good credit, you may want to turn to a company like StreetShares, a peer-to-peer lender with APRs ranging from 8% to 40%.
Working capital loans to buy equipment
Investing in quality equipment can help you avoid the mayhem caused by a refrigerator on the fritz or an office full of malfunctioning computers. Since equipment purchases tend to come with hefty upfront costs, short-term loans with low interest rates can help you manage the overall cost of the transaction.
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| • Bad personal credit • Businesses with strong cash flow • Retail or food service businesses |
• Good personal credit • Long-term capital • Low rates • SBA loans |
• Good personal credit • Established businesses • Franchises |
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| • 500+ personal credit score • 1+ year in business • $100,000+ annual revenue |
• 600+ minimum credit score • 2+ years in business • $50,000+ annual revenue |
• 620+ personal credit score • 2+ years in business • $150,000+ annual revenue |
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| $5,000 to $500,000 | $30,000 to $350,000 | $25,000 to $500,000 |
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| 9% to 98% | 7% to 8% | 8% to 33% |
At OnDeck, unlike with many other lenders, cash flow trumps credit, meaning a business struggling with its credit score may still be able to qualify for a term loan, and you may still be able to snag that deal on a new stove.
Established companies with good credit, however, may want to turn to Funding Circle or SmartBiz for lower-interest loans. Not only are they good for equipment purchases, but the funds can also be used for expansion or to purchase a second location. With APRs from 7% to 8%, SmartBiz provides SBA loans, the cream of the lending crop. However, the application process is lengthy and complicated. If you need quicker access to cash, check out Funding Circle.
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Working capital loans if you have unpaid customer invoices
Any company that works in the business-to-business sector, whether a manufacturer selling products wholesale or a consultant providing advice to a law firm, will face gaps in cash flow, namely when clients pay 30, 60 or even 90 days late. To help keep your business running while the check’s in the mail, consider invoice financing, which fronts you the money from outstanding invoices.
It’s a good option when you’re in a pinch, although high APRs do make these services a pricey pick. If the companies that owe you money have strong credit, BlueVine can still front you cash, even if you are a new business with poor credit. If you’re really in a bind, Fundbox can get you cash in anywhere from one to three business days.
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| • Bad personal credit • Businesses with strong-credit customers • Newer businesses |
• Bad personal credit • Fast cash • Financing smaller invoices |
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| • 530+ personal credit score • 3+ months in business • $120,000+ annual revenue |
• No minimum credit score • Must use online accounting software such as QuickBooks, FreshBooks or Xero • No annual revenue requirement |
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| $20,000 to $500,000 | $500 to $100,000 |
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| 17% to 60% | 13% to 68% |
Working capital loans: Summary
| Funding options | Good option for: | Do you qualify? | Loan Amount & APR |
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• Good personal credit • Long-term capital • Low rates • SBA loans |
• 600+ minimum credit score • 2+ years in business • $50,000+ annual revenue |
• $30,000 to $350,000 • 7% to 8% |
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• Good personal credit • Established businesses • Franchises |
• 620+ personal credit score • 2 years in business • $150,000+ annual revenue |
• $25,000 to $500,000 • 8% to 33% |
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• Good personal credit • Veterans • Newer businesses |
• 600+ personal credit score • 1+ year in business • $25,000+ annual revenue |
• $2,000 to $100,000 • 8% to 40% |
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• Good personal credit • Businesses with recurring inventory purchases |
• 600+ personal credit score • 1+ year in business • $12,500+ monthly revenue |
• 100% of outstanding invoices up to $500,000 • 11% to 22%, plus prime rate |
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• Bad personal credit • Businesses with unpaid invoices • Businesses with strong-credit customers • Newer businesses |
• 530+ personal credit score • 3+ months in business • $120,000+ annual revenue |
• $20,000 to $500,000 • 17% to 60% |
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• Bad personal credit • Retail or food service businesses |
• 500+ personal credit score • 1+ year in business • $100,000+ annual revenue |
• $5,000 to $500,000 • 9% to 98% |
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• Bad personal credit • Businesses with unpaid invoices • Fast cash |
• No minimum credit score • Must use online accounting software such as QuickBooks, FreshBooks or Xero • No annual revenue requirement |
• $500 to $100,000 • 13% to 68% |
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• Bad personal credit • Fast cash |
• No minimum credit score • 1+ year in business • $50,000+ annual revenue • Must have a business checking, payment platform or accounting software account |
• $2,000 to $100,000 • 32% to 108% |
Evaluate small-business loans carefully
When looking for a working capital loan, it’s important to compare all your options based on APR, which represents the true cost of the loan, including all fees. To evaluate other loans, you can go to NerdWallet’s small-business loan tool. NerdWallet’s list of lenders is based on factors including market scope, user experience and lender trustworthiness.
Jackie Zimmermann is a staff writer at NerdWallet, a personal finance website. Email: jzimmermann@nerdwallet.com. Twitter: @jackie_zm. NerdWallet staff writer Teddy Nykiel contributed to this article.
This post was updated May 23, 2016. It was originally published on Aug. 25, 2015.
from NerdWallet
https://www.nerdwallet.com/blog/small-business/small-business-loans-cash-flow-working-capital/
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