Everything You Need To Know About Working Capital Loans

In an ideal situation, you’d be able to raise the business working capital by making higher business revenue. Unfortunately, this is not the way things always work for every organization.

Business working capital can be tricky and unpredictable for various small businesses, especially for new businesses and those which are operating seasonally. As a result, many small businesses prefer working capital loans for short term financing.

We broke down some of the most common types of working capital loans that are available:

What is a working capital loan?

A working capital loan is designed for day-to-day business operations that need help to cover the common operating expenses of the business. It illustrates the liquidity and short-term financial health of a business and usually offers business finance loans with the lowest rates.

Types Of Working Capital Loans

Short-Term Loans

Short term loans are the most common type of business working capital loan that you need to pay back with interest over an estimated length of time. The time to repay the loan can vary from three to 18 months.

Business Line of Credit

Business or Working capital line of credit is ideal for small to medium-sized regular purchases including payroll expenses, marketing campaigns, etc. You only have to pay interest when you use the line of credit.

It is best for business owners if there is an urgent need for working capital to set up an emergency fund.

Merchant Cash Advances

Working capital loans are a cash advance against the daily debit/credit card transaction volume. In MCA, the lender provides you a sun of cash that you need to repay by a fixed percentage of your daily credit card sales.

Ideal for businesses or retail stores with high volumes of debit/credit card transactions and for those who can’t qualify for traditional financing.

Invoice Financing

Many businesses frequently face a lack of working capital due to unpaid invoices or late payments. Therefore, invoice financing is the best solution to finance your business when your working capital is tied up in outstanding invoices. It allows you to trade in the active or unpaid invoices for business capital.

SBA Loans

SBA loans are backed by the U.S. Small Business Administration. It is a low-interest-rate business loan that allows you to borrow money for different business purposes including buying real estate, working capital, refinancing other debts, purchasing equipment or inventory.

Business Credit Cards

Business credit cards are quite similar to common credit cards, and most of them are available with a variety of benefits and rewards. Business credit cards are ideal for daily purchases.

Commercial Real-Estate Loan

Commercial real estate loans are debt-based funding agreements between the lender and a business.

It is used to cover operational costs by financing the unaffordable major capital expenditures of the company.

Equipment Financing

Equipment financing is very similar to short term loans and mainly used to purchase hard assets for your business including heavy machinery, large equipment, etc. Those assets are used as collateral for the loan.


A working capital loan is the best way to finance your business when it is struggling with regular cash flow. They are ideal for a relatively short term so that you can repay the principal amount and interest within a short duration of time.

Choosing the right working capital loan for your small businesses needs careful attention to detail. Most of the capital loans usually come with numerous terms and conditions that you must read carefully before signing.

Give us a call at 703-399-1685 for more information.