Small Business Working Capital Loan Explained

Your business’s working capital is a vital part of funding your daily operations and paying your bills on time. It is the fuel that keeps your small business financially viable. But what do you do when your current assets are less than your current liabilities?

You may need to secure a working capital loan solution quickly, or you risk being unable to meet your financial obligations and keep your business running smoothly.

According to the Small Business Administration, many businesses that are seasonal or have slower periods during the calendar year, will probably need a greater amount of working capital available in order to stay afloat during their slow season.

In other words, if you look at your annual profits you may make enough to meet all of your obligations, but if that revenue is not spread out evenly throughout the year, you run into financial problems during slow months. Careful planning may not be enough to stay afloat during your off-season. Sometimes a working capital loan is required to get you through.


What You Can Do With a Working Capital Loan

The purpose of a working capital loan is to have funds available to pay your business’ financial obligations during a slump in revenue and still allow you to have a cushion of money for emergencies.

Working Capital loans cover:

  • Monthly debt payments
  • Payroll for your employees and staff
  • Utilities for the business
  • Mortgage or rent payments for the business
  • Buying inventory or materials required for you to meet customer demand
  • Repairs or replacement of required equipment or tools for your business


Finding a Loan That Fits

As important as it is to get a solution quickly to meet your needs for business capital, it is vital for you to understand all the fine print before you pursue a specific loan program.

According to, today’s small businesses are seeking alternative funding solutions, online, for short term capital needs. Sometimes you can find a loan through the Small Business Association (SBA) other times, it’s best to go through an alternative lending institution that offers a solution that fits your needs and limits your repayment risks, even if the loan rate is slightly higher. The idea is it is better to get a loan you need with terms that you can handle, than to struggle with a loan product that does not fit your business.



The bank may be where you first think to turn, but it probably won’t offer the best options to fit your needs. According to, institutional lenders are still focused on larger businesses and their lending needs. The banks have set qualification requirements at a pretty high benchmark and most small businesses, especially those in need of working capital, do not get approved easily.

Things to consider:

  • You must have a very detailed business plan, which outlines your business, tax and bank records, and all the collateral you have, which they will take possession of if you cannot repay the loan.
  • Your credit history is a part of the approval process. If you have faced financial challenges before, you may not qualify.
  • Banks require a lengthy application that takes at least 30 days to process.
  • Your length of time in business is a factor. Conventional loans typically require three years of proven history.


Small Business Administration (SBA)

The SBA is a government agency that provides a variety of financing options for small businesses including working capital loans. It does not serve as the actual lender, but rather connects you to one of their lending partners, then backs part of the loan with a guarantee. The drawback to this is the SBA has a very lengthy application process and requires a solid financial history.

Other considerations include:

  • The SBA requires you have drafted a detailed, solid, comprehensive business plan that includes your past, present and future plans.
  • You need to have good business credit and personal financial history to back up your creditworthiness.
  • The application process is document intensive, and since this is a government agency, it takes more time. This is a loan that can take up to 90 days to receive.


Alternative Lenders

According to, alternative lending is where many business owners are turning now for working capital loans and creative programs that support their success. These lenders can offer more flexibility in how you repay your loan and they typically have several options to choose from.

Some offer a payment plan that fluctuates, up or down, to match your sales volume. This limits any major associated risks of taking out a loan and eliminates concerns that you won’t be able to make your payments.


Other things to consider:

  • Alternative lenders typically have a streamlined, one page application you complete online.
  • Documentation is usually limited to a few bank statements you submit with the application.
  • Typically, the interest rates are slightly higher, but you stand a great chance at easy, straightforward approval on a great loan product that fits your needs.
  • You receive your approval quickly, in as little as a few days.
  • They create a repayment plan for you that is reasonable and takes your business’s sales into account.



A small business working capital loan can help your business thrive. As a business owner, understanding and choosing the best business funding solution is important to your success. To learn more about innovative loan options, contact Credibly today!

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