Working capital loans can help business owners close financing gaps, offset seasonal fluctuations in revenue and cover payroll costs. Furthermore, business owners can choose from several types of working capital loans to meet these diverse needs, including term loans, lines of credit, SBA loans, and bill discounting.
long term loans
A term loan is a type of financing offered by a bank, online lender, or other financial institution that must be repaid over a set period of time – usually anywhere from a few months to 25 years. Loan amounts typically range from $2,000 to $500,000, and interest rates can range from 6% to 99%.
Related: Best Small Business Loans
business lines of credit
Business lines of credit allow borrowers to withdraw for a set amount of money based on need. Instead of receiving the money as a lump sum, the business owner can access the credit limit during the withdrawal period, which typically lasts up to five years. Credit limits generally range from $2,000 to $250,000, and annual interest rates range anywhere from 10% to 99%.
SBA loans are backed by the US Small Business Administration and are intended to help small business owners start, maintain, and grow their businesses. There are a number of SBA loan programs for different applicants’ purposes, circumstances, and qualifications—each with its own loan amounts, terms, and rates. Common SBA loan programs for working capital include:
- SBA Loans 7(a). The SBA 7(a) Loan Program is the Department’s core business loan offering. Loans are available up to $5 million and can be used for working capital, but are also suitable for purchasing real estate, refinancing debt and purchasing business supplies. Effective November 3, 2021, interest rates on SBA 7(a) loans range from 5.5% to 9.75%.
- Caplins. Part of the 7(a) program, CAPLines are loans intended to provide working capital to small businesses for the short-term and periodic – or seasonal – needs. Borrowers can choose from a CAPLine contract loan, a seasonal line of credit, a builders line of credit, and a working capital line of credit – all with a borrowing limit of $5 million, and a maximum repayment term of up to 10 years.
- SBA Small Loans. SBA Small Loans are available for qualified small businesses that need financial assistance to get started or expand. The funds can be used for working capital, as well as for the purchase of equipment, machinery, inventory and other operating costs. Loan amounts are available up to $50,000, rates vary by lender but range from 8% to 13%.
Discounting on the invoice
Billing is the process of selling a company’s bills to a third party company to factor the bills for a fee for a portion of the balances owed—generally around 85% to 95% of the total value. Once the invoices are sold, the factoring company is responsible for the collections. The business receives the rest of the money minus any fees once the factoring company collects the invoices.
The invoicing factor enables small businesses to get cash quickly without qualifying for a traditional loan and going through a lengthy loan application process.