Having enough working capital is key to every successful business. Working capital – the cash available to cover day-to-day expenses – gives businesses the bandwidth to fulfill their regular financial obligations as well as flexibility to invest in growth.
But many businesses – even successful ones – struggle with having enough working capital at any given time.
Ideally, you’d establish a line of credit with your local bank before you experience a cash-flow crunch, because banks offer the lowest financing rates. But if you don’t have a bank line of credit and need working capital fast, several online products are available at a higher cost.
There are many options for working capital loans, and it’s important to get a loan that’s best for your specific situation.
Here we compare eight working capital loans and break down when you should use each, the price you’ll pay to borrow and what you need to qualify.
Best working capital loan for businesses with short-term inventory needs
The lack of effective inventory management is a primary reason businesses have lapses in available cash, says Will Katz, director of the Small Business Development Center at the University of Kansas. If you need to purchase a lot of inventory upfront that you won’t sell and profit from until weeks or months later, inventory financing is one solution.
Online lender Dealstruck offers a line of credit designed exclusively for buying inventory. Once you qualify for a loan from Dealstruck, you’ll need to submit your inventory purchase order. Dealstruck will pay your supplier directly, and you’ll start repaying Dealstruck after you begin selling that inventory.
| Lender |  |
| APR | 14% to 36% |
| Minimum qualifications | One year in business, $200,00 in annual revenue, 600 credit score |
| Apply via lender’s secure sites | Learn More (Read our OnDeck review.) |
Best working capital loans for businesses that need cash fast
As noted above, your best practice is to secure financing long before you actually need it. But if you’re in a pinch, OnDeck and Kabbage both offer lines of credit that can get you approved and funded within a few days.
OnDeck’s line of credit is much less expensive than Kabbage’s, but it requires slightly more to qualify. Kabbage doesn’t require a minimum credit score; it makes lending decisions largely based on your bank account activity and other online accounting platforms, e-commerce and social media accounts that you connect.
| Lender | |  |
| APR | 14% to 36% | 20% to 113% |
| Minimum qualifications | One year in business, $200,00 in annual revenue, 600 credit score | One year in business, $60,000 in annual revenue. |
| Apply via lenders’ secure sites | Learn More (Read our OnDeck review.) | Learn More (Read our Kabbage review.) |
Best working capital loans for equipment or expansion
If you have the basic, day-to-day expenses covered and want to invest in equipment or other improvements to expand your business, you’ll want a term loan. You can get the lowest-rate term loans from a bank. But if you don’t qualify for a bank loan or don’t want to deal with the paperwork associated with one, there are several online options.
Below are five online loans you can use to cover equipment, expansion and any other costs associated with growing your business.
| Lender |  |  |  |  |  |
| APR | 7% – 8% | 7% – 26% | 8% – 30% | 8% – 32% | 11% – 28% |
| Minimum qualifications | Two years in business, $50,000 in annual revenue, 600 credit score*. | Two years in business, $150,000 in annual revenue, 620 credit score. | Two years in business, $100,000 in annual revenue, 600 credit score. | Two years in business, $75,000 in annual revenue, 600 credit score. | One year in business, $12,500 in monthly revenue, 600 credit score, inventory purchase order. |
| Apply via lenders’ secure sites | Learn More (Read our SmartBiz review.) | Learn More (Read our Funding Circle review.) | Learn More (Read our Fundation review.) | Learn More (Read our Lending Club review.) | Learn More (Read our Dealstruck review.) |
*SmartBiz doesn’t technically have revenue or credit score minimums, but most borrowers meet these minimum qualifications.
SmartBiz: This online lender offers loans guaranteed by the U.S. Small Business Administration, but the approval time for SmartBiz loans is much faster than it is for traditional SBA loans. SmartBiz is among the least expensive financing options out there. You’re most likely to qualify if you are an established business and have strong finances.
Funding Circle: Your business needs to have been profitable in at least one of the last two years to qualify for a loan.
Fundation: You need to have at least three employees (including yourself) to qualify.
Lending Club: Lending Club’s terms and APRs are very similar to those of online lenders Funding Circle and Fundation. If you qualify for all three lenders, apply for all and choose the one with the best APR. Complete all three applications within a short period of time so it’s only counted as one hard inquiry on your credit report.
Dealstruck: In addition to offering an inventory line of credit and an asset-backed line of credit, Dealstruck offers a term loan. Many business owners who use Dealstruck borrow both a line of credit (to cover recurring purchases) and a term loan (to pay for large, one-time business investments).
The bottom line on working capital loans
Working capital is an essential component of running a business. If you don’t have enough of it, you can use several online small-business loans to augment your working capital, including lines of credit, short-term loans and term loans. Compare all your options based on factors including APR and what you qualify for before you apply.
Find and compare small-business loans
NerdWallet has come up with a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged the lenders by categories that include your revenue and how long you’ve been in business.
Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.
This post was updated. It was originally published on Aug. 25, 2015.
Image via iStock.
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