Working Capital Loans for a Small Business

Are you looking for a small business loan to cover startup costs or increase your company’s productivity? You should get familiar with how these loans work and which lending institution—banks, credit unions, or online lenders—offers the best terms.

This article explains what working capital loans for a small business are and lists different options for you to consider.

Use DoNotPay to access a powerful product that helps you find a lender and secure a loan fast.

What Are Small Business Working Capital Loans?

Working capital loans for a small business are short-term funding that you can use to cover day-to-day expenses and finance your business’s activities, such as:

• Hiring staff
• Adding inventory
• Managing cash flow
• Purchasing equipment
• Refinancing your debts

Different Forms of Working Capital Small Business Loans

Small business working capital loans are available in the following forms:

1. Terms loans
2. Cash flow loans
3. Lines of credit
4. Invoice financing
5. Merchant cash advances
6. Small Business Administration (SBA) loans

Term Loans for Small Businesses

Term loans are a common form of financing for startups that:

• Provides working capital
• Has to be repaid over a set period

This type of small business loan might be suitable for your business if you need to:

• Get the funds fast
• Finance certain renovations
• Manage your cash flow with extended repayment terms

Cash Flow Loans

Cash flow or short-term loans are similar to term loans since you:

1. Get a lump sum
2. Must pay back the provided amount in installments over a set amount of time

Keep in mind that you will have to settle a fixed fee instead of interest.

Lines of Credit

Lines of credit is a type of small business loan you can get if your business needs funding for operational cash flow and you want to borrow a part of available funds.

Invoice Financing

Invoice financing is a form of small business working capital loan that could be suitable for your company if you:

• Experience cash crunches as a result of outstanding invoices
• Do not qualify for a small business line of credit

Merchant Cash Advance

Merchant cash advance (MCA) is a type of loan that is beneficial for a small business that:

• Is looking for short-term capital
• Generates considerable revenue through credit card transactions
• Does not qualify for any other type of loan

Keep in mind that MCA interest rates are usually extremely high.

Small Business Administration (SBA) Loans

Some SBA loans—such as the 7(a) Loan Program—can also be used for working capital.

Since the SBA guarantees a part of the sum, these loans are among the best small business loans for companies with little collateral and credit history.

Keep in mind that SBA loans might not be suitable for you if you are in a hurry as their approval process can take up to three months.

How To Choose the Best Small Business Working Capital Loan

When looking for a working capital loan for your small business, you need to go through different options.

You should not decide before considering numerous criteria, including the ones in the following table:

Get Small Business Loans With DoNotPay

Since getting a loan can be a challenging and lengthy task, you will need all the help you can get. Start with gathering the necessary documentation to prove your small business is healthy. Here is what you should do:

1. Collect your personal and business credit scores
2. Prepare any business financial statements, including the:
   1. Profit and loss statement
   2. Cash-flow statement
   3. Balance statement

While important, paperwork is not enough—you should also create a formal letter that will convince a loan officer your request needs to be approved.

DoNotPay can help you generate an airtight small business loan request letter that will include all necessary details and convey the right message.

If you have prepared the above-listed documents, access DoNotPay and take these steps:

1. Choose our Business Loan Request Letter feature
2. Enter your company’s information
3. Inform us about the amount you would like to borrow
4. Upload the gathered documentation

Finding a lender can be overwhelming as there are numerous options to choose from.

If you do not know where to start, use the integrated Find Online Business Loan Lender product while completing our questionnaire. We will rank the best lenders for you based on your business's type, industry, and loan requirements.

Get the Upper Hand With DoNotPay

The business world is extremely competitive—that is why it is always good to have some extra capital set aside when you need to invest in your company. You can leave the bureaucratic task to us—DoNotPay will draw up business loan request letters in your stead.

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