In this article, we’ll cover the 8 best ways to get working capital loans for an existing business. The money can used to buy inventory, hire a new employee, start a remodel, or to finance other day to day operations of your business. We’ve included the qualification requirements, average interest rates, and pros and cons associated with each financing option.
We’ve listed these working capital loan options roughly in order of cost, with the lowest interest rate option listed at the top and most expensive option listed at the bottom. Directly below is a handy infographic that summarizes each of the 8 options for working capital loans covered in this article.
Does your small business need working capital?
|How To Qualify||Pros||Cons|
Borrow up to $5 million
6-9% interest rates
(fast funding for loans under $350K)
Traditional commercial loans
No minimum or maximum
5-15% interest rates
No minimum or maximum
5-20% interest rates
Borrow up to your credit limit
15% interest rates
Marketplace (P2P) loans
Borrow up to $500K
15-30% interest rates
Borrow up to $250K
30-60% interest rates
Short-term alternative loans
Borrow up to $500K
40-80% average interest rate
Merchant cash advances
Borrow 100-250 % of monthly credit card receipts
80%+ average interest rate
Working Capital Loans: In-Depth Overviews of Each Option
1. SBA Loans
Average Annual Interest Rate : 6-9%
SBA loans are often the cheapest source of working capital for small business owners, with lower interest rates and longer repayment periods than traditional commercial loans. The reason is that the Small Business Administration guarantees that it will pay the lender up to 75-85% of the loan should the business owner default. It is not the SBA that actually provides these loans. SBA lending partners, such as banks, community development organizations, and microlending institutions, actually issue the loans.
There are several types of SBA loans, but the most common one is the standard 7a loan. The 7a loan can be used for working capital, buying a business or a franchise, refinancing debt, real estate, and any other valid business purpose. You borrow up to $5 million with a 7a loan, and the standard term is 10 years. SBA 504/CDC loans are available for borrowers who want to purchase real estate, equipment, or machinery.
How to Qualify for SBA Loans
To qualify for an SBA loan, you will typically need the following:
- FICO score above 680 (check you credit score for free here) for all primary business owners.
- Collateral. The collateral requirement isn’t as strict as it is with traditional commercial loans, but banks hesitate to lend a large amount of money through an SBA loan without sufficient collateral.
- 20 % or higher down payment if you’re planning to use the loan to buy real estate or acquire a business.
Most SBA loans are given to profitable businesses that have been operating for at least 2 years at a profit. It is possible to obtain a startup SBA loan, but in order to qualify, you’ll likely need to have, in addition to the above, 3-5 years of business management or industry experience.
Pros of Getting an SBA Loan
- Lowest interest rates of all financing methods
- Longer terms than traditional commercial loans
Cons of Getting an SBA Loan
- Your business typically needs to be in operation for at least 2 years
- A good personal credit score (680 or higher) is required.
- You have to sign a personal guarantee (meaning you are personally liable if your business cannot pay the loan back). However, this is true of most types of business loans.
SBA Loan Resources
- Learn more about SBA loan interest rates.
- Use Our SBA Loan Calculator To See Your Estimated Monthly Payments On An SBA Loan.
- Read our Full Guide on How to Apply for an SBA Loan.
Get an SBA Loan Up To $350K in as Little as 7 Days with
Get a Long-Term SBA 7a loan for Commercial Real Estate $350K – $5M
2. Traditional Commercial Loans
Average Annual Interest Rate: 5-10% (Real Estate Backed Loans), 9-15% (Non-Real Estate Backed Loans)
Commercial loans are loans that are given to a business by a lending organization, such as a bank or credit union. Your business generally needs to have been operating for at least 2 years to qualify.
Because there is no SBA guarantee to reduce the risk for the lender, commercial loans are generally more difficult to get, requiring higher levels of collateral (business or personal assets) and demonstrated business success. However, if you can get a commercial loan, the interest rates are generally lower than any other financing method, with the exception of SBA loans.
In addition, since the lender doesn’t have to comply with SBA rules, it can be faster to qualify for a traditional commercial loan compared to an SBA loan.
If you are looking for a smaller loan (under $150,000) commercial loans are probably not a good option. Commercial lenders rarely give loans for under $150,000 because the amount of work involved to underwrite and process such a loan, given the small return, makes it unprofitable for the lender.
How to Qualify Traditional Commercial Loans
The qualification requirements for a traditional commercial loan are similar to the requirements for an SBA loan. You will still need good credit, at least 2 years in business, collateral, and down payment if you plan to purchase real estate or an existing business with the loan. As mentioned above, however, the lender may require higher levels of collateral and a higher down payment since there’s no SBA guarantee.
Pros of Getting a Commercial Loan
- Lower interest rates than most financing options
- Can borrow significant amounts of money for large projects
Cons of Getting a Commercial Loan
- You must generally have a business that is profitable and that has been for at least 2 years
- Difficult to borrow less than $150,000
- Need substantial collateral and/or down payment
- Need a great personal credit score (680 or higher in most cases – check your score for free here)
Commercial Loan Resources
- To learn more about the different types of commercial loans and how your business can qualify, check out our in-depth article: Commercial Loans: The Ultimate Guide for Small Business Owners
3. Equipment Financing
Average Annual Interest Rate: 5-20 %
Equipment financing is the primary option for businesses that need working capital to purchase equipment, vehicles, and machinery of any type. In most cases, lenders will structure equipment financing with a lease.
Leases come in two types. Capital leases, also called buyout leases or put leases, are not very different from loans. You get a 2-5 year lease, make monthly payments, and at the end you have the option to buy the equipment for a nominal amount of money (e.g. $1 with a $1 buyout lease). Capital leases are a good option for equipment that lasts a long time, such as cranes and tractors, and that you are fairly certain you want to keep at the end of the lease.
Fair Market Value leases, also called operating leases, are the other type. They also typically have 2-5 terms but offer lower monthly payments. If you want to purchase the equipment at the end of the lease, you must pay the then-fair market value. FMV leases are a good option for equipment that requires frequent upgrades, such as computers, or that you are fairly certain you just want to rent for a limited period of time.
Whichever type of lease you get, the good news is it’s not too difficult to qualify, and the interest rates are relatively low. Even new businesses or people with challenged credit are often able to qualify for equipment financing. This is because the equipment or machinery serves as collateral.
How to Qualify for Equipment Financing
You should have decent personal credit, over 600, to qualify for equipment financing, and you shouldn’t have any credit red flags, such as a recent bankruptcy.
Pros of Equipment Financing
- Relatively easy to qualify if you have a credit score over 650 (check your score for free here).
- Even new businesses can qualify.
- Low interest rates because the equipment serves as collateral.
Cons of Equipment Financing
- Money can only be used on equipment
- Startups or businesses with bad credit may have to pay a higher rate.
Equipment Financing Resources
Need equipment financing?
Get prequalified in minutes with
4. Business Credit Cards
Average Annual Interest Rate: 15 % (some credit cards also have an annual fee)
Did you know that 37 % of small business owners use credit cards as a source of working capital for their business?
Surprisingly, credit cards are actually a pretty inexpensive form of financing, and they offer a string of benefits. The average interest rate is around 15 %, and some credit cards offer 0 % interest for a limited time (usually 9-21 months) as a promotional incentive. Technically, you could borrow for free on a credit card if you accrue and pay off your balance before the end of such a promotional period.
A credit card may also allow you to transfer high-interest debt onto a lower interest credit card with a balance transfer. If you use a credit card that has a rewards program, you can earn cashback or points with every purchase. The best business credit cards offer both both introductory rates and rewards.
Credit cards are best suited for smaller purchases because you are limited to your credit line. However, some businesses may qualify for a unique financing solution called credit card stacking, where you can pool multiple credit cards together for a large credit limit.
How to Qualify for Business Credit Cards
To qualify for a good credit card, you’ll need a credit score of at least 660. You can review a wide of personal and business credit cards and apply on CompareCards.com.
Pros of Credit Card Financing
- Credit cards have relatively low interest rates compared to many other types of financing.
- It’s relatively quick and easy to get a credit card if you’re not happy with your current card.
- You can earn cashback or rewards if your card has a rewards program.
- You can take advantage of 0 % interest promotions
- Transfer high interest debt to your credit card with a balance transfer.
Cons of Credit Card Financing
- You are limited to your credit line in what you can purchase.
- Balances can pile up and interest can increase if you can’t pay your balance in full each month.
- You must have a personal credit score above 660 to qualify for the best credit cards. (Check your score for free here.)
Credit Card Financing Resources
- Read our comprehensive guide about when and when not to borrow on credit cards to fund your business.
- Find out our recommendations for the best small business credit cards.
Compare and Apply for Credit Cards at
5. Marketplace Loans (P2P)
Average Annual Interest Rate: 6-30% (generally 15% or higher)
Marketplace loans are basically working capital loans that are funded by willing individual or institutional investors to you through an online marketplace like Lending Club. These sites allow you to go online, provide some basic business information, and get an instant loan rate quote (1-5 year term). You can generally get your funding in 2 weeks or less.
Some marketplace lenders, such as Lending Club, offer both personal and business loans. Personal loans can be used to start or capitalize a business, but they are limited to $40,000. For larger amounts of capital, you can obtain a business loan through a P2P lender.
How to Qualify for Marketplace Loans
While it’s easier to qualify for a marketplace loan compared to an SBA loan or traditional commercial loan, you still have to have good credit (over 620). For business marketplace loans, you must be an established business generating a decent amount of revenue.
Pros of Getting a Marketplace Loan
- This is a fast way to obtain capital (the process takes 1-2 weeks).
- Lower credit score (620+) required than for SBA and traditional commercial loans.
Cons of Getting a Marketplace Loan
- Personal marketplace loans only offer up to $40,000 in capital.
- To get a business marketplace loan, your business must be at least 2 years old and generating at least $75,000 in revenues.
- Higher interest rate than SBA and commercial loans
Marketplace Loan Resources
Borrow up to $500K With
Our Recommended Marketplace Lender
6. Invoice Factoring
Average Annual Interest Rate: 30-60%
Invoice factoring allows small businesses to convert, for a fee, outstanding invoices into capital. Basically, instead of having to wait to collect on future invoices, invoice factoring allows a business to get working capital right away. Invoice factoring is a quick and flexible way to get a short-term line of credit and bridge cash flow gaps. You can use it to factor invoices that are due in 90 days or less.
With traditional factoring, when the invoices come due, the invoice factoring service collects the payments directly from the invoiced business, subtracts its fees, and sends the remainder along to you. BlueVine, Fundbox, and NOWaccount are modern invoice factors that do things differently. They won’t contact your clients, so your clients will not know that you are factoring their invoices.
With rates starting as low as a flat 2.5 % for a NET 30 invoice, invoice factoring may be worth considering for your small business.
How to Qualify for Invoice Factoring
To qualify, you must typically meet the following requirements:
- Your customers must be businesses or government clients who pay their invoices promptly.
- The invoices must be due in 90 days or less.
- You must have been operating for at least 3-6 months.
- You should have a decent personal credit score (above 530).
Pros of Using Invoice Factoring
- Can get money fast.
- Don’t need collateral.
- Rates as low as a 2.5 % one-time fee for a NET 30 invoice
- Don’t need great credit.
Cons of Using Invoice Factoring
- Only available to companies that bill other businesses or government customers via invoice.
- Higher interest rate than longer-term lending solutions (i.e. bank loan, marketplace loan).
- Must have customers who have been reliably paying their invoices for at least a few months.
Invoice Factoring Resources
Apply With Our Recommended Invoice Factoring Companies:
For Regularly Invoiced Clients
For Advances $25K+
For Advances $25K-
7. Short-Term Alternative Loans
Average Annual Interest Rate: 40-80%
Alternative lenders are basically non-bank lending companies that provide short-term (1 month – 3 years) loans of up to $500,000 to businesses with lower credit scores. If you need a small working capital loan that you are going to be able to pay off within a few years, then alternative lenders can be a great option. Alternative lenders can get you funding in as little as 1 business day. Just be mindful that they are costlier than a traditional commercial loan or SBA loan. In addition, if you want more money and a longer repayment term, then you should probably look into other options.
In addition to a personal guarantee, many alternative lenders will also place a blanket lien on your business assets. If you cannot repay the loan, the lender can sell off any or all of your business assets to satisfy the loan. The personal guarantee means you’re on the hook for the loan even if your business closes down.
How to Qualify for a Short-Term Alternative Loan
To qualify with an alternative lender, you will generally need the following:
- You should be in business for at least 9 months.
- A FICO score of 500 or higher for primary business owners.
- Annual business revenues of at least $50,000.
Pros of Getting Money from an Alternative Lender
- Get your money much faster than a traditional commercial loan or SBA loan.
- Don’t need great credit.
- Can sometimes get approved after only one year of business operation.
Cons of Getting Money from an Alternative Lender
- Interest much higher than SBA loans and traditional commercial loans.
- Requires a personal guarantee (but this is true of many other types of working capital loans as well).
- Most alternative lenders will place a lien on your business assets.
Alternative Loan Resources
Get Capital in as Little as 1 Business Day
with Our Recommended Alternative Lender
8. Merchant Cash Advances
Average Annual Interest Rate: 60+ % (often effectively 80 % or higher)
A merchant cash advance is when a business gets a lump sum loan from a lender in exchange for a daily share of their credit card sales. Personal credit and collateral do not matter that much. It’s all about how much credit and debit card revenue your business makes in a year.
The nice thing is that this form of financing relates to your business only; there is no personal guarantee of payment, and if you cannot pay, your personal credit score will not be damaged.
This is also a flexible form of financing. There is no fixed due date by which you have to pay back the merchant cash advance payback because you do not have to pay if your credit card sales dry up. You just resume payments when they start flowing again, and the payments vary based on how much credit card sales you processed that day. In general, most companies pay back a merchant cash advance within 4-18 months.
However, there is a downside: the killer interest, which is generally 60% or higher annually. Often times merchant cash advance are a last resort for of financing. If you credit score is preventing you from qualifying for better financing terms, consider reading our credit repair article.
How to Qualify for a Merchant Cash Advance
To qualify for a merchant cash advance, the most important thing is that you must be doing a large volume of credit or debit card sales. The amount of money you can qualify for depends on your level of credit card sales–you can typically borrow between 85 % and 250 % of your average monthly credit card receipts.
Pros of Getting Money Using a Merchant Cash Advance
- Can be accepted with a bad credit score
- You don’t need any collateral, you just need a consistent credit card business
- No personal guarantee needed
- Fast way to get money
- You only pay in proportion to your credit card receipts. If you have a bad month, payments are lower. If you make no sales for some time, you resume payments when sales start coming ie again.
Cons of Getting Money Using a Merchant Cash Advance
- Extremely high interest rate
- Can only get money if you have lots of credit card sales
Merchant Cash Advance Resources
Apply for a Merchant Cash Advance
with Our Recommended Provider
Bottom Line: Working Capital Loans
Fortunately, there are lots of ways to get working capital loans for an existing business. We encourage you to check out our in-depth articles at the bottom of each of the 8 financing options above so that you do not miss important information and can figure out which source of financing is best for your business. Good luck!