Businesses can use a small business working capital line of credit to cover temporary gaps in working capital resulting from seasonality or unexpected expenses. In contrast to term loans, it’s best used for smaller gaps in funding rather than large one-time payments. The best lenders offer flexible terms to small businesses for working capital management.
Top 6 Working Capital Lines of Credit Providers 2020
|Working Capital Line of Credit Lenders||Best For|
|BlueVine||(Best overall) Businesses that need up to $250,000 with flexible repayment terms|
|Kabbage||Businesses that need up to $250,000 with monthly payments up to 18 months|
|OnDeck||Business owners with excellent credit who want low rates and needing up to $100,000|
|Fundbox||Newer and smaller businesses that need a line of credit up to $100,000|
|Fundation||Established businesses that want the lowest potential rates for up to $150,000|
|Headway Capital||Low credit business owners who need up to $250,000 for two years' terms|
What Working Capital Is
Working capital is a measure of the liquidity your business has available for day-to-day operations of a business. You can calculate it by subtracting the current liabilities from the current assets. Current assets are cash and other short-term assets, like accounts receivable and inventory, and current liabilities are short-term debt obligations, such as accounts payable and the current portion of your long-term debt.
Business owners sometimes use working capital to estimate the health of their business and understand whether it has sufficient capital to meet its obligations. If you have an expected shortfall, you can get a small business line of credit to cover it and avoid any fees and negative marks on your credit history caused by late payments on other obligations.
What a Working Capital Line of Credit Is
A working capital line of credit is revolving financing that’s best for businesses needing to supplement their working capital. Revolving financing, like a credit card, lets businesses borrow again after repaying an advance because the credit limit replenishes. This makes it a great solution to help cover operating expenses, inventory, and payroll costs.
How We Evaluated Working Capital Lines of Credit
Getting the right LOC will result in the lowest possible costs based on your creditworthiness, fair repayment terms, and qualifications that are achievable. We selected online lenders in our list for their convenient online application, quick funding speed, and ability to meet the needs of most small businesses.
Based on the needs of small business owners selecting a working capital line of credit, the criteria we used to evaluate the best include:
- Line of credit amount: As a small business owner, you can estimate the gap in working capital that your business is facing. Selecting a lender that can provide adequate credit is, therefore, most important. Lenders offer maximum funding amount from $100,000 up to $250,000.
- Rates and fees: Although the interest rate of many working capital lines of credit providers has a wide range, understanding what it is, and the expected cost of borrowing is critical to making the right selection. You can expect an annual percentage rate (APR) between 10% to as high as 100% or more, depending on your qualifications, with an average of 30% to 50%.
- Terms: Most online lenders will require regular weekly or monthly payments of principal and interest, besides a personal guarantee and blanket UCC filing. However, the time you have to repay an advance is critical to budgeting your future cash flows and can range from three months to 24 months.
- Qualifications: Making sure that your time in business, annual revenue, and personal credit score meet the requirements of a lender will save you time when applying and increase your odds of approval. Lenders that offer unsecured lines of credit will typically require a credit score of 550 or higher, with six months in business, and at least $50,000 in annual revenue.
- Funding speed: Last but not least, working capital shortages often need immediate attention to avoid costly fees and other problems. Although traditional lenders often have lower rates, they seldom match the speed with which you can get funded from an online lender. Getting funding in a day instead of a few weeks can save you time and money.
When to Get a Working Capital Line of Credit From a Traditional Lender
If you can wait a few weeks to get a traditional line of credit, consider applying at your local bank. You can get lower APRs of 7.25% to 15.25% (1.75% to 9.75% above the prime rate) and longer repayment terms than with online lenders. However, you must meet higher requirements, including having a personal credit score of at least 680.
If you need a working capital line of credit quickly, then we believe BlueVine is the best lender. This is because BlueVine offers funding as soon as the next business day with credit limits up to $250,000 and starting interest rates of 4.8% for 26-week terms. With repayment terms of six months or a year and both weekly and monthly payments, it’s the most flexible lender we evaluated.
BlueVine: Overall Best Working Capital Line of Credit
BlueVine has the best overall line of credit because it offers flexible terms, high credit limits, and low interest rates to help businesses manage their working capital. Besides weekly or monthly payments, limits up to $250,000, and a starting APR of 15%, BlueVine also has a 10-minute application, with next-day funding and you can potentially qualify for a term loan or invoice factoring with it.
BlueVine Working Capital Line of Credit Rates & Fees
Based on the stated APR, you can expect to pay between $4.11 and $21.37 in daily interest for every $10,000 you draw from a BlueVine line of credit. Among lenders without an origination fee, BlueVine has the lowest cost of capital. BlueVine doesn’t charge a prepayment penalty, and if you repay your draw early, you can save money on interest.
BlueVine Working Capital Line of Credit Terms
With BlueVine you can qualify for a credit line up to $250,000 to help you manage your working capital. It offers terms of six months or 12 months, with weekly and monthly payments, respectively. It also has a simple online application that takes 10 minutes to complete, with funding as soon as the next day.
BlueVine is only matched by Kabbage for its credit limit size of up to $250,000. You can draw on its small business line of credit in $500 increments after you make an initial $5,000 minimum draw. BlueVine is the only lender, besides Headway Capital, that offers both weekly and monthly payment options, to help businesses plan their cash flows and manage their working capital.
BlueVine Working Capital Line of Credit Qualifications
BlueVine has separate qualifications for its weekly payments over six months and monthly payments over one year. For both, you must be in business for at least six months, making it a great option for newer businesses. However, you’ll need a slightly higher personal credit score of 650 to qualify for a 12-month repayment term, compared to 600 for the six-month repayment terms.
BlueVine’s line of credit offers the most flexibility for small businesses. This is because there are options for newer, smaller, and larger businesses to use its line of credit to manage their working capital. BlueVine also allows business owners with less than excellent credit to qualify. This range of options is largely why it ranks first on our list of the best working capital line of credit providers.
What a BlueVine Working Capital Line of Credit Is Missing
A BlueVine line of credit has high minimum qualifications if you need monthly payments with a 12-month repayment term. If you need monthly payments but can’t meet the annual revenue or credit score requirements, consider the next best working capital line of credit provider on our list, Kabbage. Alternatively, if it’s for a one-time funding need, consider BlueVine’s working capital term loan instead.
BlueVine gets positive reviews from its customers around the web. Positive BlueVine reviews mentioned the speedy application and funding process, and the responsiveness of its customer support team. Some critical reviews of BlueVine mentioned unexpected fees, but BlueVine is transparent with the rates and fees it charges, disclosing both the lowest and highest rates when we contacted its sales team. For more reviews, visit our BlueVine reviews page.
How to Apply With BlueVine
BlueVine’s application requires some basic personal and business information in addition to revenue verification. Business owners can upload recent bank statements or connect BlueVine to a number of business banking websites or accounting software providers to verify income. BlueVine can provide a funding decision within hours and funding the same day.
Kabbage: Best Working Capital LOC With Monthly Payments
Kabbage offers a line of credit with monthly payments, making it a great option if your business needs longer terms for working capital management. Like BlueVine, the maximum credit line is $250,000 a starting APR of 24% and terms up to 18 months. It also has a quick online application with next-day funding.
Kabbage Working Capital Line of Credit Rates & Fees
Instead of an interest rate, Kabbage charges a monthly advance fee that ranges from 1.5% to 10% per month. Your advance fee will also decline while a draw is outstanding, typically averaging 3% to 4% for a draw which is an APR of 36% to 48%. There are also no additional origination, prepayment, or maintenance fees charged by Kabbage.
The APR of a Kabbage line of credit is slightly higher than BlueVine at 24% to 99%. This results in a daily interest cost on a $10,000 draw that ranges from $6.58 to $27.12. However, this is the only charge you must pay for its working capital line of credit, unlike some providers that offer lower rates, but also charge origination fees.
Kabbage Working Capital Line of Credit Terms
Kabbage offers repayment terms of six, 12, or 18 months on its line of credit up to $250,000. It also offers monthly payments and lets you draw as little as $1 using the connected Kabbage Card. With the unique Kabbage Card, you’re able to access your line of credit, similar to a credit card. This gives you added flexibility for making payments online and covering day-to-day expenses. No other provider on our list offers a similar feature.
Kabbage offers the longest repayment terms up to 18 months to the best-qualified borrowers, matched only by Fundation and Headway Capital. It also offers monthly payments, unlike OnDeck, which only has a weekly payment option. Kabbage, like BlueVine and OnDeck, has a quick online application and next-day funding, but you can also access funds without waiting for a transfer with its connected Kabbage card.
Kabbage Working Capital Line of Credit Qualifications
Kabbage has one set of qualifications for all borrowers, requiring a minimum credit score of 550, one year in business, and at least $50,000 in annual revenue. If your business is growing, you can also qualify if you’ve had monthly revenues of at least $4,200 for the past three months.
Kabbage has a lower minimum credit score requirement than BlueVine and OnDeck, but it requires a longer time in business than BlueVine. This can make it more difficult to qualify as a newer business. However, smaller businesses with lower annual revenues will have an easier time qualifying with Kabbage than with other lenders like BlueVine.
What a Kabbage Working Capital Line of Credit Is Missing
Kabbage is less accessible to newer businesses than a provider like BlueVine because it requires at least a year in business compared to six months. It also doesn’t offer other financing products, like BlueVine and OnDeck. This doesn’t take away from its line of credit but can mean that business owners will have to look elsewhere if they need a term loan in the future.
Kabbage has positive reviews on the web from its customers. Many positive reviews noted the ease of the application process and how helpful its customer service was. Some critical reviews noted confusion about the way fees are calculated or were unhappy they were denied funding. To read more reviews, visit our Kabbage reviews page.
How to Apply With Kabbage
Small business owners can complete a Kabbage application online by connecting a business bank account and providing some basic information. Kabbage provides an approval decision in a few hours and can make funds available to draw as soon as the next business day.
OnDeck: Best Line of Credit for Prime Borrowers
OnDeck offers a working capital line of credit up to $100,000 that’s best for business owners with a prime credit score (at least 680). These businesses can qualify for the lowest APRs of 13.99% and terms up to a year with weekly payments. OnDeck also offers a term loan up to $500,000, and both online applications are quick and simple with funding as soon as the next business day.
OnDeck Working Capital Line of Credit Rates & Fees
OnDeck offers one of the lowest rates to prime borrowers among the lenders we evaluated at 13.99%, and it’s transparent when disclosing that the weighted average APR is 32.6% as of June 2018. It also charges a monthly maintenance fee on the account, which you can get waived for up to six months by making a $5,000 draw within five days of account opening.
With a $10,000 draw from an OnDeck line of credit, you can expect to pay between $3.83 and $17.32 in daily interest. This makes OnDeck one of the lowest cost lenders we evaluated, second only to Fundation. You also won’t save money by repaying your draw early, unless you request and are granted a prepayment discount.
OnDeck Working Capital Line of Credit Terms
You can qualify for $6,000 to $100,000 with an OnDeck line of credit. You must make weekly payments over six or 12 months, depending on the qualifications you meet. You can get funded 24 hours after completing its 10-minute online application, making it one of the fastest business loans on our list.
An OnDeck line of credit has a substantially smaller limit than the $250,000 offered by BlueVine and Kabbage. While it has similar repayment terms to BlueVine but doesn’t offer a monthly payment option, which can be inconvenient for some business owners. However, you can get repayment terms up to a year, similar to BlueVine.
OnDeck Working Capital Line of Credit Qualifications
OnDeck requires a minimum credit score of 600, annual revenue of $100,000, and at least a year in business to qualify for its working capital line of credit. This can be difficult to meet for newer and smaller businesses, making it better for established businesses with owners who have a high personal credit score.
The minimum qualifications of OnDeck are similar to BlueVine, except the time in business requirement. While OnDeck requires a minimum of one year in business, you could qualify after six months with BlueVine. If you are having trouble meeting the minimum credit score requirement, consider a lender like Fundbox or Headway Capital that doesn’t have a minimum score.
What an OnDeck Working Capital Line of Credit Is Missing
An OnDeck line of credit only offers funding up to $100,000, which can be insufficient for many small businesses. It also only offers weekly payments, which some borrowers may find puts a strain on their cash flows. For a larger limit and monthly payments, consider applying with BlueVine or Kabbage instead.
OnDeck receives positive reviews from its customers around the web. Many customers that left positive reviews were thrilled with its customer service and simple application process. Some negative reviews we read came from users who were unhappy about being denied funding. To read more reviews about OnDeck, visit our OnDeck reviews page.
How to Apply With OnDeck
Applying with OnDeck requires basic business and personal information that can verify the identity of the owner and the existence of the business. Small business owners can choose to connect a business bank account or upload three months of recent bank statements to verify revenue and receive an approval decision the same day.
Fundbox: Best LOC for Newer and Smaller Businesses
Fundbox offers a line of credit up to $100,000 that’s perfect for newer and smaller businesses. You only need a suggested $50,000 a year in annual revenue and six months in business to qualify. It only offers weekly payments with terms up to six months, but interest rates start at 0.5% per week, with funding as soon as the day after you apply.
Fundbox Working Capital Line of Credit Rates & Fees
Fundbox charges a weekly interest rate that starts at 0.5% per week for 12 weeks, and 0.7% for 24 weeks. It also disclosed its APR range to be between 10% and 79%. There are no additional maintenance or prepayment fees due with a Fundbox working capital line of credit, making it a good option in case of emergencies.
You can also pay back your line of credit early and save money on interest. Repaying your line of credit early lets you access more funding sooner and is great for financing inventory purchases. On a $10,000 draw with Fundbox, your daily interest cost ranges from $2.74 to $21.64, which is comparable to the other lenders on our list.
Fundbox Working Capital Line of Credit Terms
Fundbox offers a maximum credit line of $100,000 with a minimum draw of $100. You’ll only have 12 or 24 weeks to repay the draw, and payments need to be made on a weekly basis. However, you can get an approval decision in as little as three minutes, with funding as early as the next business day.
Fundbox has a maximum loan amount of $100,000, which is lower than the maximum of $250,000 offered by BlueVine and Kabbage. It also offers repayment terms of three or six months, which is the shortest repayment term on our list. Some providers, including Fundation and Kabbage, offer monthly payments, which can be a better option if you need less frequent payments.
Fundbox Working Capital Line of Credit Qualifications
Fundbox does not have a minimum personal credit score requirement, making it a great potential lender for business owners that have poor credit. It also only requires six months in business and $50,000 in annual revenue, making it accessible for newer businesses.
With no minimum personal credit score requirement, it’s much easier to qualify for Fundbox than another lender like OnDeck. The only other lender on our list that offers no minimum personal credit score is Headway Capital. However, both will do a soft credit check when you apply and a hard credit check when you accept a funding offer. Newer businesses can also apply, with only six months in business required, similar to BlueVine.
What a Fundbox Working Capital Line of Credit Is Missing
Fundbox has short repayment terms of 12 or 24 weeks. This can be insufficient time for businesses that experience seasonality or need more time to ensure adequate cash flow. It also offers no additional financing options. For longer terms up to 12 months, plus additional financing options, consider BlueVine instead.
Fundbox has positive reviews around the web. Customers praised its simple application process, quick funding speeds, and responsive customer service. A few negative reviews mentioned wanting monthly payments and longer repayment terms. To read more reviews, visit our Fundbox reviews page.
How to Apply With Fundbox
Fundbox can connect to a business owner’s bank account or accounting software to determine eligibility. Business owners that verify revenue and meet the minimum requirements can receive a funding decision in as little as three minutes.
Fundation: Another Working Capital LOC for Established Businesses
Fundation offers a working capital line of credit with conservative requirements, long repayment terms, and low interest rates that’s another option for well-established businesses. To qualify for up to $150,000, business owners need a credit score of at least 660. Fundation reserves the best rates of 7.99% for businesses with several years of operations and substantial revenue and also offers a term loan up to $500,000.
Fundation Working Capital Line of Credit Rates & Fees
Fundation interest rates start as low as 7.99%, but it charges a $500 closing fee when the account is set up and an additional 2% every time you make a draw. Its APR ranges from 7.99% to 29.99%, making it the lowest cost working capital line of credit we evaluated.
The rates and fees you can expect with a working capital LOC from Fundation are:
- Starting interest rate: 7.99%
- Expected APR: 7.99% to 29.99%
- Origination or maintenance fee: $500 closing fee
- Prepayment penalty or termination fee: None
- Additional fees: 2% draw fee
With the stated APR, borrowers can expect daily interest costs that range from $2.19 to $8.22 for every $10,000 draw, beating out both BlueVine and OnDeck. However, it’s the only lender on our list that charges both a closing fee and an additional draw fee every time you get funding. Fundation charges no termination fees, and if you repay your draw on the line of credit early, you can save money.
Fundation Working Capital Line of Credit Terms
A Fundation working capital line of credit has a maximum limit of $150,000. However, what stands out is the minimum limit of $20,000, which is higher than the other lenders we evaluated. It also has generous repayment terms of 18 months with monthly payments but can take two to seven days for the initial funding process.
The terms you can expect with a small business line of credit from Fundation are:
- Loan amount: $20,000 to $150,000
- Minimum draw: Undisclosed, but we expect it to be at least $1,000
- Repayment term: 18 months
- Repayment schedule: Monthly
- Collateral: Blanket UCC filing required
- Personal guarantee: Required
- Funding speed: Two to seven days
The high minimum credit line can be an advantage for well-established businesses needing substantial credit to manage their working capital. Besides Fundation, Kabbage is the only line of credit provider that offers repayment terms up to 18 months. However, Kabbage doesn’t offer those terms to every borrower it approves.
Fundation Working Capital Line of Credit Qualifications
Fundation requires a personal credit score of at least 660, with one year in business, and annual revenues of at least $100,000 to qualify for its line of credit. Considering the rates and terms offered by Fundation, this is a relatively low minimum requirement and can be met by an established business looking for a working capital line of credit.
The typical qualifications you can expect with a business line of credit for working capital from Fundation are:
- Personal credit score: At least 660 (check your score for free)
- Time in business: At least one year
- Annual gross business revenue: At least $100,000
Fundation has a slightly higher minimum credit score requirement than BlueVine and OnDeck, making qualifying more difficult. However, its time in business and annual gross business revenue requirement is the same as OnDeck. This makes it a good fit for business owners that can leverage their credit scores to get favorable rates and terms.
Other Working Capital Solutions Offered by Fundation
Fundation also offers a term loan in addition to a line of credit, like both BlueVine and OnDeck. It has the same rates, and requirements, which means established borrowers can benefit from having access to both. The biggest difference is that the loan amount can be as high as $500,000 and requires payments twice a month over one to four years.
The rates, terms, and qualifications of a term loan for working capital from Fundation are:
- Starting interest rate: 7.99%
- Expected APR: 7.99% to 29.99%
- Loan amount: $20,000 to $500,000
- Repayment terms and schedule: One to four years and twice a month
- Personal credit score: At least 660
- Time in business: At least one year
- Annual revenue: At least $100,000
- Speed of application & funding: 20-minute online application with funding in two to seven business days
The term loan from Fundation is a great additional financing option to help businesses get over any shortfalls in working capital. Fundation offers the lowest rates we evaluated and loan amounts that are only matched by OnDeck’s term loan. However, it has higher minimum qualifications than other providers and takes longer to fund than other online lenders.
What a Fundation Working Capital Line of Credit Is Missing
Fundation has a higher minimum credit score than other providers of at least 660. However, it offers monthly payments with repayment terms of 18 months to all of its customers. For monthly payments with a term up to 18 months apply with Kabbage. If you need lower minimum qualifications, then consider working with Fundbox.
Fundation has no reviews from its customers online. This is likely because Fundation approves only the applicants with the best credit scores and ability to repay. We expect customers are generally happy with its financing products, due to the low rates and long repayment terms.
How to Apply With Fundation
Fundation requires business bank statements and basic information but may also request additional financial statements from small business owners. It’s line of credit also takes longer to fund than other providers, with business owners typically waiting from two to seven days for funding.
Headway Capital: Another Option for Entrepreneurs With Bad Credit
Headway Capital offers a line of credit up to $100,000 with no minimum credit score requirement making it another option for business owners that have poor credit, below 500. It offers repayment terms up to two years but, unlike the other lenders on our list, only offers funding in 32 states. The lowest APR you can qualify for is 40%, which is expensive compared to other lenders.
Headway Capital Working Capital Line of Credit Rates & Fees
Headway Capital has the highest starting interest rate we evaluated of 3.3% per month to 6% per month. This allowed us to calculate its APR range of 40% to 72%. However, this may vary based on the state in which your business is located. There is also an additional draw fee in some states of up to 2%.
The rates and fees you can expect with a working capital line of credit from Headway Capital are:
- Starting interest rate: 3.3% to 6% per month
- Expected APR: 40% to 72% or higher depending on location
- Origination or maintenance fee: None
- Prepayment penalty or termination fee: None
- Additional fees: Draw fee of 0% or 2% (varies by state, due to restrictions on the draw fees a lender can charge for financing)
For every $10,000 borrowed with Headway Capital, borrowers can expect to pay between $10.96 and $19.73 in daily interest on the working capital line of credit. The starting rates for Headway Capital are substantially higher than other providers, and it’s the only provider besides Fundation that charges a draw fee in addition to interest. Also, with Headway Capital, repaying your advance early doesn’t save you any money as the full interest is due.
Headway Capital Working Capital Line of Credit Terms
Headway Capital only offers lines of credit up to $100,000 with long repayment terms of 12 to 24 months and weekly or monthly payments. The minimum draw required by Headway Capital is undisclosed. However, we expect it to be around $1,000 based on our experience with other lenders.
The terms you can expect with a small business working capital LOC from Headway Capital are:
- Loan amount: Up to $100,000
- Minimum draw: Varies by state
- Repayment term: 12, 18, or 24 months
- Repayment schedule: Weekly or monthly
- Collateral: Blanket UCC filing required
- Personal guarantee: Required
- Funding speed: Approval and funding in as little as one business day
The loan amount offered by Headway Capital is smaller than the one offered by Kabbage or BlueVine and is more in line with Fundbox. However, it offers the longest repayment options we evaluated, and it matches BlueVine on the repayment schedule flexibility by offering both weekly and monthly payment options.
Headway Capital Working Capital Line of Credit Qualifications
Headway Capital has high rates and low loan amounts to provide borrowers with low credit business loans. There is no minimum credit score requirement, and you must be in business for at least a year to qualify. Your annual gross business revenue must also exceed $50,000, and your business must be located in one of the 32 states where it offers funding.
The typical qualifications you can expect with a business line of credit for working capital from Headway Capital are:
- Personal credit score: No minimum credit score
- Time in business: At least one year
- Annual gross business revenue: At least $50,000
- Available states: Alabama, Arizona, California, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Iowa, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming
The qualification requirements for a Headway Capital line of credit are similar to Fundbox. There is also no minimum credit score, which can help a business owner with poor or nonexistent credit qualify for funding. However, its costs are much higher, partially due to the much longer repayment terms it offers and the lower credit score requirement.
What a Headway Capital Working Capital Line of Credit Is Missing
Headway Capital is the most expensive option on our list, with a starting APR that’s more than twice as high as other providers. However, it accepts businesses with poor or nonexistent credit scores and low annual revenue. For a lender with similar stated minimum qualification requirements and lower costs, consider applying with Fundbox.
Headway Capital Reviews
Headway Capital has mostly positive reviews from its customers around the web. Users that left positive reviews noted the simple process and appreciated being approved after getting turned down by other online lenders. Negative reviews pointed out that the overall cost of the line of credit was high. For more reviews, visit our Headway Capital reviews page.
How to Apply With Headway Capital
Business owners can complete a Headway Capital application online by submitting basic personal and business information. After initial verification, Headway Capital requires small business owners to upload four months of bank statements to verify revenue. In some cases, Headway Capital may request additional information and can provide a funding decision the same day.
Pros and Cons of a Working Capital Line of Credit
There are multiple advantages to using a working capital line of credit, including no interest charges on unused funds and no need to reapply for additional funding. It can also be used as a source of emergency capital. However, repayment terms are short compared to term loans, it’s relatively expensive, and your lender can reduce or cancel the line.
Pros of Using a Small Business Working Capital Line of Credit
- There is no need to reapply when you need additional credit: Having access to revolving credit is great for businesses with predictable working capital needs due to seasonality. Unlike a term loan, you won’t need to reapply when you need credit again and can instead access the line of credit as needed.
- You only owe interest on the funds you use: Sometimes, business owners get a term loan when they should have gotten a line of credit. Instead of using the funds for a large purchase, they let most of it sit in their bank account, paying interest. With a line of credit, if you don’t use it, there are no interest payments.
- It’s a great source of emergency funding: Shortages in working capital are sometimes unpredictable and can be caused by sudden losses, like an unpaid invoice, or opportunities, like a discount on inventory. Either way, it’s good to have a line of credit ready in case you need it, to avoid applying at the last minute.
Cons of Using a Small Business Working Capital Line of Credit
- You have to pay it back quickly: It’s unusual for a working capital line of credit to last more than two years, with most online lenders offering up to one year or less for repayment. Compared to a term loan that can offer three or more years, you will have less time to repay a draw on a line of credit, making it better for short-term funding.
- It’s relatively expensive compared to other financing options: A traditional business line of credit has variable rates averaging 14%, and online lenders average above 30%. This is relatively expensive compared to a traditional business loan, which is closer to 10%.
- Your lender can reduce your credit limit or cancel your line: If you’re not making on-time payments, your revenue is declining, or your credit profile deteriorates, your lender may reduce or cancel your line of credit. However, if the opposite is happening, many online lenders will also automatically consider you for an increase.
You can get a line of credit for emergencies because there is no interest on unused funds. However, you may need to pay an origination fee. You also won’t need to reapply, allowing you to keep borrowing when you need working capital. However, you’ll need to pay it back quickly, and it can be relatively expensive. If you feel the cons outweigh the pros for your business, consider getting an alternative form of financing.
A working capital line of credit is best for small business owners needing credit for a shortfall in working capital. Unlike a term loan, it’s not good for large one-time expenses. Instead, it can be used again once you pay the balance down like a credit card. This makes it especially useful for recurring issues or emergencies.
For the most flexible terms on a working capital line of credit up to $250,000, we recommend BlueVine to small businesses. It offers weekly and monthly payments over six or 12 months, respectively. You can get funded the next day at low rates starting at 4.8% after completing its 10-minute online application.