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.
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:
Small business working capital loans are available in the following forms:
- Terms loans
- Cash flow loans
- Lines of credit
- Invoice financing
- Merchant cash advances
- Small Business Administration (SBA) loans
- 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
- Get a lump sum
- 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.
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 (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.
Some SBA loans—such as the 7(a) Loan Program—can also be used for working capital.
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.
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:
|Criteria To Evaluate||Details|
|Qualifications||You should confirm whether you fulfill the required criteria, including the minimum:
|Collateral and guarantee requirements||You need to check if the lender mandates:
|Rates or fees||You should consider interest rates and fees carefully since they add up to the total sum you will have to repay to the lender in the end|
|Funding speed||It is important to know how long:
|Repayment terms||How long you will have to repay your loan could affect your:
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:
- Collect your personal and business credit scores
- Prepare any business financial statements, including the:
- Profit and loss statement
- Cash-flow statement
- 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:
- Choose our Business Loan Request Letter feature
- Enter your company’s information
- Inform us about the amount you would like to borrow
- 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.
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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