Short answer: a working capital loan covers day-to-day costs such as payroll, rent, inventory and the gap between paying suppliers and getting paid by customers. It is not one product but a job that several products can do: lines of credit, short-term loans, invoice factoring, merchant cash advances and SBA 7(a) loans. The right one depends on how long you need the money and how fast.
What is a working capital loan?
Working capital is the cash a business uses to run from week to week. A working capital loan fills a shortfall in that cash. Common reasons:
- Seasonal swings, such as building inventory before a busy season
- Slow-paying customers, when invoices take 30 to 90 days to turn into cash
- Growth, such as hiring or taking a large order before the revenue arrives
- A short-term dip in sales or an unexpected expense
Because the need is usually short-term, most working capital financing is short-term too. Using short-term money for a long-term purpose, such as buying a building, is a common and expensive mistake.
Types of working capital financing
| Type | How it works | Typical speed | Best for |
|---|---|---|---|
| Business line of credit | Draw what you need up to a limit, repay and draw again | 1 to 7 days to open | Recurring or unpredictable gaps |
| Short-term loan | A lump sum repaid over months, often weekly or daily | Days | A one-time need |
| Invoice factoring | Sell unpaid invoices for cash now | 1 to 3 days | B2B businesses waiting on customers |
| Merchant cash advance | A lump sum repaid from future sales | 1 to 3 days | Fast cash for card-heavy businesses |
| SBA 7(a) loan | Government-guaranteed loan; working capital terms up to 10 years | 30 to 90 days | Lower cost when you can wait |
Speeds are the typical ranges from our loan guides.
SBA working capital loans
The SBA does not have a single "working capital loan," but its programs can cover it:
- SBA 7(a) loans can be used for working capital, with terms up to 10 years and rates capped at Prime plus a set spread. See our SBA 7(a) guide.
- SBA lines of credit (CAPLines) are 7(a) lines built for seasonal and short-term working capital needs.
- SBA Express loans are a faster 7(a) option for smaller amounts.
- SBA microloans cover working capital up to $50,000 through nonprofit lenders (SBA).
SBA options cost less than most alternatives but take longer and require more paperwork. Check the SBA loan requirements before you apply.
How much working capital can you get?
Lenders size working capital mostly from your revenue and cash flow, not from the purpose. Expect them to look at:
- Average monthly deposits over the last three to twelve months
- Existing debt payments, including any cash advances
- Time in business and credit
- Your receivables, for invoice factoring and some lines of credit
Our post on how much working capital you can get goes deeper. Borrow what the need actually costs, not the most you are offered.
How working capital loans are repaid
Repayment depends on the product:
- Lines of credit: monthly payments on what you have drawn, often interest-only during the draw period
- Short-term loans: fixed daily, weekly or monthly payments over a set term
- Merchant cash advances: a share of daily sales or a fixed daily or weekly debit
- Invoice factoring: your customer pays the factor, and you receive the rest minus fees
- SBA 7(a): fixed monthly payments over up to 10 years for working capital
Daily and weekly payments come straight out of revenue, so check them against your slowest week. Our business loan calculator shows the payment as a share of revenue. For more detail see how working capital loans are repaid.
What working capital loans cost
Costs vary more by product than by lender. Bank and SBA options are cheapest. Online lines of credit and short-term loans cost more. Cash advances usually cost the most once you convert their factor rate to an APR. Our small business loan rates page has current ranges by lender type.
How to qualify
- Steady revenue. The single biggest factor for most working capital products.
- Clean bank statements. Few overdrafts or returned payments.
- Time in business. Many online lenders want six months to a year or more; banks and SBA lenders usually want two years.
- Credit. Matters more for banks and SBA lenders than for factoring and cash advances.
- Documents. Usually ID, EIN and three to six months of bank statements for fast products, plus tax returns and financial statements for bank and SBA loans. See how to get a business loan for the full checklist.
Where to get working capital fast
If you need money within days, the fastest sources are an existing line of credit, invoice factoring, a merchant cash advance or a short-term online loan. Compare total cost before speed. Our guide to fast business loans lays out the trade-offs, and our instant quote shows a realistic range in about a minute without a credit pull.
Frequently Asked Questions
What is a working capital loan?
A working capital loan is financing for day-to-day business costs such as payroll, rent, inventory and bills, rather than for long-term assets. Lines of credit, short-term loans, invoice factoring, merchant cash advances and SBA 7(a) loans can all be used for working capital.
How does a working capital loan work?
You receive a lump sum or a credit line, use it to cover operating costs, and repay it from future revenue. Fast products are usually repaid over months with daily, weekly or monthly payments. SBA working capital loans are repaid monthly over up to 10 years.
Can I get an SBA working capital loan?
Yes. SBA 7(a) loans can be used for working capital with terms up to 10 years, and SBA CAPLines are 7(a) lines of credit designed for seasonal and short-term needs. SBA microloans cover smaller amounts up to $50,000. Approval takes longer than with online lenders.
How much working capital loan can I get?
Lenders mostly base the amount on your average monthly revenue, cash flow and existing debt payments. Businesses with steady deposits, good credit and a longer history qualify for more. Invoice factoring is sized by your unpaid invoices instead.
Is a working capital loan short term or long term?
Most are short-term, repaid over a few months to two years. SBA 7(a) loans are the main exception, with working capital terms of up to 10 years. Match the term to the need: short-term needs should use short-term money.
How fast can I get working capital?
Merchant cash advances and invoice factoring can fund in one to three days, and a draw on an existing line of credit can arrive within a day or two. Online short-term loans usually take a few days. SBA loans usually take 30 to 90 days.