Working Capital Loans: Compare Top Options

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
What Is a Working Capital Loan?
Monthly bills and/or debt payments Payroll Inventory Operational expenses Emergency expenses
Who Might Want a Working Capital Loan?
Restaurants Manufacturers with cyclical sales Retailers with seasonal business Building contractors Startups Businesses looking to expand
How to Calculate Working Capital
Cash (checking and savings accounts) Accounts receivable Inventory Assets soon to be paid off or liquidated (like equipment) Stocks, bonds, and mutual funds
Rent Utilities Supplies Principal and interest payments on any debt Accounts payable Accrued taxes Long-term debt that will be due in the short-term
Types of Working Capital Loans
SBA 7(a) and 7(a) Express Loans
Short-Term Loans
Lines of Credit
Invoice Factoring
Inventory Financing
Merchant Cash Advances
Bank Overdraft Facility
Pros and Cons of Working Capital Loans
May not require collateral (these are called unsecured loans) Can help improve cash flow Let you maintain ownership of your business (they don’t involve private investors) May involve a faster loan process than other products Come in numerous types of loan products
Certain loans may require a higher credit rating Interest rates may be high on certain loan products Working capital loans may affect both your personal and business credit
How to Apply for a Working Capital Loan
1. Determine What the Loan Is for and How Much Capital You Need
What type of working capital do you need to cover — payroll, inventory, bills? How much money do you need? How often will you be able to make payments? What is your budget for payments? Do you have other sources of funding?
2. Decide Which Type of Loan Is Right for Your Business
Short-term loan Business line of credit Invoice factoring SBA loan Merchant cash advance Inventory financing Bank overdraft facility
3. Assess What Your Business Most Likely Qualifies For
Your personal and business credit rating What, if any, collateral you can provide State of your business finances How long your business has been operating Whether you have positive or negative working capital
4. Choose a Lender
5. Prepare Documentation and Submit Application
Business financial records Personal and business credit reports Cash flow projections Your business plan (to show how the working capital loan will be used) Identifying information, which may include proof of your citizenship Business legal documents
6. Partner with a Lender to Secure a Capital Loan
Alternatives to Working Capital Loans
Restaurant Loans
Franchise Financing
Equipment Financing
Personal Loans
Find Working Capital Loans with Lantern Credit
Frequently Asked Questions
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About the Author
Julia Califano is an award-winning journalist who covers small business, personal loans, credit cards, and other financial topics for Lantern. She has over 20 years of experience writing and editing articles on personal finance and other consumer topics for major print and digital outlets, including DailyWorth, Good Housekeeping, Glamour, Self, the Slingshot Fund, Harper’s Bazaar, and Fordham Lawyer Magazine. She has also served as an editor at Time Inc., Conde Nast, and Hearst.
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