Best working capital business loans in September 2023
Working capital loans are designed to provide a small amount of funding to cover operational costs, particularly when there’s a shortage in cash flow. Many lenders keep lending criteria loose for this purpose, offering loans with low credit score and revenue requirements. While it’s possible to find working capital loans specifically, businesses can cover this need with many types of business loans, including term loans or business lines of credit.
Check our best picks for working capital loans. These top lenders offer relaxed requirements, fast funding and a wide range of loan amounts you’d need to cover most operational expenses.
Compare the best working capital loans in September 2023
| LENDER | BEST FOR | LOAN AMOUNT | MIN. FICO CREDIT SCORE | MIN. ANNUAL REVENUE |
|---|---|---|---|---|
| Accion Opportunity Fund | Low interest | $5,000 to $100,000 | N/A | Not stated |
| American Express® Business Line of Credit | Fair credit | $2,000 to $250,000 | Minimum FICO score of at least 660* at the time of application | Average monthly revenue of at least $3,000 |
| Fora Financial | Startups | $5,000 to $1.4 million | 500 | $48,000 |
| National Funding | Unsecured working capital loan | $5,000 to $500,000 | 600 | $250,000 |
| OnDeck | Fast funding | $5,000 to $250,000 | 625 | $100,000 |
| SMB Compass | Bridge loan | $25,000 to $5 million | 650 | Not stated |
| Wells Fargo | Business line of credit | $5,000 to $150,000 | 680 | Not stated |
A closer look at our top working capital business loans
Accion Opportunity Fund: Best for low interest
Overview: Accion Opportunity Fund is a nonprofit offering alternative lending for small businesses that can’t gain funding in the traditional market. The majority of its clients come from underserved communities, such as businesses in low-income areas.
Why Accion Opportunity Fund is best for low interest: This alternative lender focuses on microloans with low interest rates from 5.99 percent to 16.99 percent. These are low rates usually reserved for businesses with the best credit, but Accion works with businesses that are considered high risk. It also doesn’t charge a prepayment penalty if you pay off the loan early. As a nonprofit, Accion Opportunity Fund can keep rates low because it doesn’t aim to turn a profit from its loans.
Who Accion Opportunity Fund is good for: Accion Opportunity Fund is an option for small businesses needing fast funding and low loan amounts. Since it weighs many factors outside of credit score to determine creditworthiness, it works well for businesses that have difficulty getting funding elsewhere.
American Express: Best for fair credit
Overview: American Express provides a business line of credit that’s accessible to many small business owners because of its eligibility requirements. It offers a credit limit ranging from $2,000 to $250,000 if your business qualifies.
Why American Express is best for fair credit: American Express’s business line of credit is available to businesses whose owners have a minimum FICO credit score of at least 660 at the time of application. In some cases, you may need a higher FICO score based on your relationship with American Express, credit history and other factors. You must have started your business at least a year ago and have an average monthly revenue of at least $3,000. But all businesses are unique and are subject to approval and review. These are fair requirements considering that many lenders consider 680 a good FICO score. Lenders also typically look for an annual revenue of over $100,000.
Who American Express is good for: American Express works well for businesses that are still building revenue and credit history.
Fora Financial: Best for startups
Overview: Founded in 2008, Fora Financial has helped thousands of small businesses secure short-term funding. It works with businesses that have less-than-perfect credit, providing access to term loans or revenue advances. Businesses can secure loans for as little as $5,000 or up to $1.4 million.
Why Fora Financial is best for startups: Fora Financial approves businesses with as little as three months’ time in business, while most lenders require one to two years under the experience belt. The online lender also has a minimum credit score of 500 for term loan applicants, lending a helping hand to businesses that have a hard time getting funding.
Who Fora Financial is good for: Startups with at least three months in business and whose owners have a credit score of 500 can apply for a term loan. The revenue requirement for term loans is low too: $10,000 monthly average for the past three months.
National Funding: Best for unsecured working capital loans
Overview: Since 1999, National Funding has provided funding to over 75,000 small businesses with a focus on term and equipment loans. It’s known for its quick online applications with approvals in as little as 24 hours.
Why National Funding is best for unsecured working capital loans: National Funding offers high loan amounts up to $500,000 with the flexibility to use the funds for any business expense. Unlike many lenders, it doesn’t require you to back your loan with collateral. It also doesn’t charge a prepayment penalty, so you can save money on interest by paying off your loan early.
Who National Funding is good for: National Funding works well for both startups and established businesses that don’t want to put up business assets as collateral. Borrowers with a score as low as 600 are eligible, though you need an annual business revenue of at least $250,000.
OnDeck: Best for fast funding
Overview: OnDeck is an online lender providing fast, short-term loans and business lines of credit to fair credit businesses. It has helped businesses secure over $15 billion in funding over the last 17 years, giving it a leg up on experience over new fintech lenders.
Why OnDeck is best for fast funding: With OnDeck, you get your loan decision within minutes of applying online. Many approved loans get funded within the same business day or within two to three business days. Get approved for loans anywhere from $5,000 to $250,000.
Who OnDeck is good for: OnDeck is a good fit for businesses with fair credit that need a low amount of funds quickly. Businesses need at least $100,000 in annual revenue.
SMB Compass: Best for bridge loan
Overview: SMB Compass is an online lender that’s funded millions of dollars in small business loans over the last 25 years. It provides an impressive selection of nine business loans with low starting rates to boot.
Why SMB Compass is best for bridge loan: SMB Compass offers bridge loans that go up to $5 million, a high loan amount compared to other lenders. It’s also transparent about interest rates. Expect to pay somewhere between 12.00 percent and 29.99 percent APRs. These are solid rates for a loan with short terms from six to 36 months.
Who SMB Compass is good for: The SMB Compass bridge loan works best for business owners with a personal credit score of 650 and a debt-to-income ratio of less than 36 percent, who need fast funding within 24 to 48 hours. The lender also offers other types of loans that can be used as working capital, including business lines of credit, which only require a minimum personal credit score of 600.
Wells Fargo: Best for business line of credit
Overview: Wells Fargo is a bank with a brick-and-mortar presence providing flexible business loan options for both small and established businesses. It offers low starting rates on three different business lines of credit and SBA loans.
Why Wells Fargo is best for business line of credit: Wells Fargo offers flexible business line of credit options, with varying credit limits and features to serve different purposes. Its BusinessLine line of credit is a general line for most small businesses that goes up to $150,000. Small Business Advantage is an SBA-backed line with a low credit limit for those with less than two years in business. And the Prime line grants the lowest rates to businesses with at least $2 million in annual revenue.
Who Wells Fargo is good for: Both established businesses and startups may be interested in Wells Fargo, as long as they have a top-notch credit score of 680.
What are working capital loans?
A working capital loan is designed to infuse cash into the business for everyday operations, such as marketing, inventory or payroll. These loans boost your business’s working capital, which is your current assets minus liabilities. The positive amount left over is the amount you can use for day-to-day purchases.
Some lenders like Credibly and Triton Capital offer loans specifically called working capital loans. But you can use other loans to boost your business’s working capital, including short-term loans and business lines of credit.
How does a working capital business loan work?
Working capital loans tend to offer short repayment terms like six to 36 months. They may also offer fast loan approvals, funding within one to three days due to the nature of the loan.
Depending on the type of loan, working capital loans may be easier to qualify for than standard term loans. They may require only a year in business and personal FICO score of 500 to 600.
Most working capital loans will have a set repayment schedule with fixed payments. If you open a business line of credit, your credit limit will reset as you pay off the loan, allowing you to borrow more funds as needed.
Requirements for a working capital business loan
Every lender sets its own standards for granting working capital loans. In general, these loans have loose eligibility criteria since they’re meant for small, everyday purchases.
Requirements you can expect:
- Annual revenue: Lenders require your business to make a specific amount monthly or annually to show steady cash flow. For working capital loans, these can range from $100,000 to $350,000.
- Time in business: Most lenders prefer businesses to show they have several years in the market. But working capital loans can range from three months to two years in business.
- Credit score: The minimum credit score is based on how much risk individual lenders are willing to take on. It’s typically set between 625 and 680 FICO, but some lenders go as low as 500.
- Industry: Lenders evaluate your business’s financial statements and risks for your industry. In some cases, the lender posts a list of industries it won’t work with, such as consulting or financial services.
Bankrate Insight
Lenders often use your personal credit score to determine creditworthiness, though business credit score may be weighed for more established businesses.
Types of working capital business loans
Your business can use various types of business loans to boost working capital. Depending on the specific use and your business qualifications, consider these options:
Term loans
Term loans are business loans that provide a lump-sum payment up front. The business then repays the loan in equal installments over a fixed period. Interest rates are either fixed or variable and get applied to the principal amount borrowed before each repayment. Working capital loans tend to be short term, such as six to 36 months.
Lines of credit
A business line of credit lets businesses borrow funds as needs arise up to a set limit. The credit limit can range from $1,000 to $250,000. Once you draw money, your business repays the loan over a fixed time period, such as six, 12 or 18 months.
The amount of money available to use renews as you pay off the borrowed amount. Your business can use the funds for any reason, typically for small purchases and to close cash flow gaps.
Invoice financing
Invoice financing is secured by a business’s future invoices. The lender advances a percentage of the unpaid invoices to the business. The business then collects payment from its clients and repays the loan.
This loan improves working capital by giving businesses access to its accounts receivable funds before clients actually pay. The lender is more concerned with the creditworthiness and payment history of the invoiced client. That makes invoice financing an accessible type of business loan for startups and business owners with poor credit.
While fees vary, invoice financing companies may charge a weekly fee like 1 percent based on the outstanding invoices. A one-time processing fee may also apply. The longer the invoice goes unpaid, the more your business will pay.
Invoice factoring
With invoice factoring, your business sells its outstanding invoices to a factoring company. The factoring company pays 70 percent to 90 percent of the total invoice amount. It then collects the outstanding invoices, takes out fees and pays your business the rest.
While fee structures vary, the main factoring fee can range from 0.50 percent to 4.00 percent of the invoice amount. The fee is typically charged based on when the customer pays. It may also be tiered, which means the fee may go up after a set time like 30 days.
Merchant cash advances
A merchant cash advance is a business loan alternative that helps you get quick funding in exchange for pledging a percentage of your future sales. MCAs charge a factor rate such as 1.10 or 1.50, which is a fee that gets multiplied by the total amount owed. Your business repays the loan with credit card sales until the loan is paid off.
Pros and cons of working capital loans
Pros:
- Get cash quickly. Many lenders will fund working capital loans within a few days, though it depends on the type of loan and how much you need.
- Typically use as needed. Unless you go with a term loan, your business can typically use the funds for any expenses. You may have to state the reason you need the funds for a term loan.
- Relaxed eligibility requirements. Businesses with bad credit can find loans to increase working capital, including alternative loan options tied to accounts receivable.
Cons:
- Short, aggressive repayment terms. Most working capital loans require repayment within a few months, such as six or 18 months.
- Potentially high interest or fees. Some loans come with high interest rates upwards of 75.00%, while others charge factor rates and additional fees like processing fees. Factor rates are known for converting to a high interest rate since they’re often used with risky types of loans.
- Low loan amounts. The loan amount that you qualify for may be lower than a standard business loan. This may be due to aggressive repayments or a risky credit profile.
Who should get a working capital loan?
Businesses with a temporary shortage of cash may need a working capital loan. For example, a seasonal or economic downturn or unpaid invoices could lead to gaps in cash flow. Businesses may also need extra capital after an unexpected expense, such as repairing or replacing equipment.
Bankrate Insight
As you’re exploring working capital business loans, watch out for these red flags:
- Upfront fees. Avoid paying application or other fees before your loan is approved.
- Early repayment penalties. Some lenders charge early repayment fees, which can cut into your savings if you try to pay your loan off early. If there’s a chance you want to pay your loan off early and save on interest costs, make sure to avoid loans that penalize you for good financial habits.
- Lack of clarity. Don't sign for a loan if you don't understand the terms of the agreement.
- Pressure tactics. Some lenders may try to pressure you to make a decision quickly. Make sure you take the time you need to compare multiple offers and make the best decision for you.
Alternatives to working capital business loans
Getting a loan for operational expenses may not be the best choice for every business. Other ways to cover your costs include:
Where to get a working capital loan
Nearly every lender offers loans that can boost your working capital, though not every lender provides working capital loans specifically. The best place for your business to get a working capital loan will depend on your business’s creditworthiness. Options to consider:
Banks
Traditional banks offer a variety of business loans that you can use for operational expenses. These may include business lines of credit, term loans or working capital loans. But banks tend to have tight lending requirements, such as requiring two years in business and a personal credit score of 670 or higher.
Online lenders
Online lenders work well for businesses with fair-to-bad credit or those needing fast funding. The minimum FICO credit score set by these lenders can range from 500 to 650. Most online lenders also fund within 24 to 72 hours, ideal if you need extra working capital right away.
SBA lenders
Nearly any SBA loan can be used as working capital loans, such as the 7(a), Express or Microloan. Express loans work well if you need fast SBA funding, but expect other SBA loans to take 30 to 90 days for approval.
These loans are backed by the U.S. Small Business Administration, and lenders are required to keep interest rates below the SBA’s maximum rate. Your business still must meet the criteria set by the lender, which may be strict. Depending on where you live, you may be able to work with a Community Advantage lender, which offers SBA 7(a) loans to businesses in underserved communities.
Community Development Financial Institutions (CDFIs)
Underserved businesses that can’t get access to traditional funding can also get a loan from a Community Development Financial Institution (CDFI). CDFIs lend to specific communities and provide education to support the small business’s success. CDFIs can be banks, credit unions, non-profit organizations or loan funds.
Minority Depository Institutions (MDIs)
Minority Depository Institutions (MDIs) are defined as institutions with either:
- Mostly owned by minority individuals or
- Most of its board made up of minority individuals; serves minority communities
MDIs typically serve minority communities through lending and additional resources, such as helping non-English speaking individuals. But MDIs aren’t limited to serving those in a minority group, allowing others to support their business model.
Find an updated list of MDIs that are supervised by the Office of the Comptroller of the Currency (OCC).
Frequently asked questions about working capital loans
Methodology
- 4.5 or higher: Outstanding
- 4 to 4.5: Excellent
- 3.5 to 4: Good
- 3.5 and under: Average
*The required FICO score may be higher based on your relationship with American Express, credit history, and other factors