Short term working capital is defined as current assets/current liabilities of a company. Generally, when a small business is looking for a working capital loan, they’re looking to add financing that allows them to bridge these differences.
For the most part, when a small business owner receives a SBA Loan for working capital, they use it toward inventory, advertising, purchasing business equipment, making payroll and other operating expenses.
SBA Working Capital Business Loans
The SBA 7(a) program has a number of short term working capital financing options (CAPlines, Export Working Capital Program, Advantage Business Loans and Rural Business Loan Program) that can provide both short-term working capital as well as long-term operating capital.
The maximum amount of working capital provided through SBA loans is $5 Million, with a maximum repayment of around 10 years. Interest rates for an SBA working capital business loan is usually between 6-8%.
Bank Working Capital
Banks generally offer two types of short term working capital business loans: traditional term loans and lines-of-credit. A bank term loan or business line of credit are the most common type of business loans in which the repayment is made over the course of 1-10 years, with an interest rate that is usually between 5-10%.
A bank line of credit for small businesses allows the business to draw on preapproved funds whenever the business owner has the needs, while only paying interest on the amount of the funds they actually use.
Alternative Working Capital Loans
A Mid Prime alternative business loans are perfect for businesses and business owners who lack the pristine credit required by traditional lenders, without having to pay the exorbitant rates/fees that they would bet from a merchant cash advance small business loans.
Rates for Mid Prime alternative loans are generally between 9-15%, with terms that range between 6 months to 5 years. Repayment of this type of loan is usually made either weekly or monthly.
Cash Advance Working Capital
Merchant cash advance business loans (sometimes called business cash advances) are the easiest of all the short term small business loans to obtain. The approval process for an advance business loan usually takes hours, with funding between 1-5 days.
The approval and funding process is not only fast, but its also simple: being that the business owner can get approved and funded without having to meet anyone face-to-face, being the process is frequently handled online, with a quick phone call at funding.
Being that the merchant cash advance lenders have high approval rates (as high as 90%) these lenders are taking more risk than traditional lenders. Therefore, rates for a business cash advance can be much higher than traditional types of small business loans.