The Best Working Capital Loans for Small Businesses

Short-term loans are designed to give small businesses rapid access to cash for immediate financial needs. Once approved, you receive a lump sum, which you’ll repay in increments—usually on a daily or weekly basis, depending on the lender’s terms.

These loans typically have lower loan amounts, shorter repayment terms (often under a year), and higher interest rates than traditional term loans. They’re handy for managing cash flow, handling unexpected expenses, or seizing quick business opportunities. Although some banks offer short-term loans, they’re more commonly available through online lenders, often providing a faster, more streamlined application process and quicker access to funds.

With a working capital line of credit, your business receives access to a revolving line with a set limit. You can draw funds up to this limit as needed, ideal for handling recurring expenses or short-term needs without taking out a new loan each time.

Lines of credit are flexible, allowing you to cover a wide range of business needs, such as purchasing supplies, bridging cash flow gaps, or making necessary upgrades. You only pay interest on the amount you draw, and as you repay the borrowed funds, your credit limit replenishes, giving you ongoing access to capital. This structure is ideal for businesses looking for flexible funding options to handle fluctuating expenses or occasional cash flow gaps.

Also known as accounts receivable financing, invoice financing lets you borrow against your unpaid invoices. In this arrangement, you can receive up to 85% of your outstanding invoices’ value upfront, with the remaining balance minus fees, given to you when your customers settle their invoices.

Invoice financing is beneficial for covering cash flow gaps, reordering inventory, or addressing day-to-day expenses. Since eligibility is based more on your customers' payment reliability than your own credit, it’s a viable option even if your credit score isn’t high. However, to receive the maximum financing, you’ll need to demonstrate that your clients are financially reliable.

SBA 7(a) loans are backed by the Small Business Administration. They are highly sought-after due to their favorable terms, low interest rates, long repayment periods, and high loan limits. With this type of SBA loan, you may qualify for up to $5 million, with repayment terms stretching up to 25 years, depending on the purpose of the loan.

These loans can cover everyday business expenses, including acquisitions, property purchases, equipment purchases, and working capital for day-to-day operations. However, SBA loans are known for their lengthy and detailed application process, requiring excellent credit, a solid financial profile, and significant documentation. If you need capital quickly, this may not be the best option, but it’s ideal for significant investments and lower-cost financing.

Purchase order financing is ideal for businesses that need funding to fulfill customer orders. If you receive a large order but lack the funds to cover supplier costs upfront, purchase order financing can bridge that gap. In this arrangement, a lender directly pays your supplier, enabling you to fulfill the order. You repay the lender once your customer pays you, typically with an added fee.

This financing is particularly beneficial for businesses that experience seasonal demand or large orders beyond their typical scale. Purchase order financing allows you to grow without being limited by cash flow, helping you maintain good customer relationships and boost revenue.

Inventory financing is a loan or line of credit specifically designed to help businesses purchase inventory. The inventory itself serves as collateral, so if you cannot repay the loan, the lender can claim the inventory to recover their funds. This type of financing is helpful for retailers, wholesalers, and other businesses that need to maintain adequate stock levels.

With inventory financing, you can keep your shelves stocked without impacting cash flow, making it easier to meet customer demand during peak seasons or promotional events. Unlike purchase order financing, which covers costs for specific customer orders, inventory financing provides broader access to funds, allowing you to buy in bulk and prepare for high-demand periods.

A merchant cash advance allows businesses to receive an upfront sum of cash, repaid by a percentage of future credit or debit card sales. The repayment amount adjusts with your sales volume, so you pay more on high-sales days and less on slower days. MCAs are typically easy to qualify for, making them an accessible option for many small businesses. However, they often come with higher fees and interest rates, so financial experts advise considering other funding options first, if available, as MCAs can be a high-cost solution.