Working Capital Loans

Short-term money for running the business: payroll, rent, stock, materials, an insurance renewal, a tax bill, the weeks between finishing a job and being paid for it. Terms run three to eighteen months, decisions come back in about a day, and the money lands in one to three business days.

It is not money for buying things that last years. A truck, a machine, a buildout or a second location paid for with a nine-month loan is the single most expensive mistake in this market, because you are paying short-term prices for a long-term asset. Those have their own, cheaper products.

In this market it is often not technically a loan either. Many working capital products are structured as a purchase of future receipts with a fixed total, which changes what early repayment saves you. Read that section before you compare offers.

A funder reads three to six months of business bank statements and asks one question: does money reliably arrive, and how much? Consistency matters more than volume, and both matter more than your score. Businesses with owners in the 500s are funded every day on the strength of their deposits.

Offers land between half and one and a half times one month's deposits. A business depositing $40,000 a month sees offers from roughly $20,000 to $60,000. The amount you are offered is what your deposits can carry, not what you need, and borrowing the whole offer when you needed a third of it is the second most expensive mistake.

Six months of deposits is the usual floor. Under that, equipment financing is more realistic because the asset does the work.

Three to eighteen months, with six to twelve the most common. A shorter term usually means a lower total cost and a much larger weekly payment, which is why the shortest term you are offered is rarely the one to take.

Repayment leaves the account daily or weekly, not monthly. Daily debits suit a business with even daily revenue and punish one that is paid on Fridays, at month-end, or on draws. Weekly is easier for almost everyone and is widely available simply by asking before you sign.

Ask who is drawing the payment and from which account, and what happens on a bank holiday. Small things, until a debit lands on a day the account is empty.

Some working capital products are priced as interest, which accrues over time. Many are priced as a factor: a fixed total set at signing, so $30,000 at 1.25 means $37,500 back whatever happens. The first kind gets cheaper if you repay early. The second kind does not, unless a discount is written in.

Compare offers on total dollars repaid over the term, never on the rate or the weekly payment alone. A lower weekly payment over a longer term frequently costs more in total, and it is quoted precisely because it sounds smaller. Fixed fees — origination, ACH, underwriting — matter more on a small, short loan than the factor does.

If a funder will not tell you the total repayment in dollars before you sign, that is information about the funder.

A working capital loan is the right shape for one defined amount at one moment: a repair, a tax bill, the materials for a job that has not paid yet. A line of credit is the right shape when the same gap opens and closes every month or every season, because you pay only on what you draw; it is harder to qualify for and worth setting up before you need it. A bank term loan runs for years, costs least, and is underwritten on credit and collateral, which is why the businesses reading this page were usually declined for one.

The honest comparison is not a rate against a rate. It is the cost of fast money against the cost of not having it this week.

When the money produces cash inside the term. Payroll while a progress draw sits in an owner's payment cycle. Stock for a season. A supplier who has moved you to cash-on-delivery. A walk-in cooler repaired on Tuesday so the restaurant trades on Friday. A workers' comp audit bill due in thirty days. The insurance renewal without which the trucks cannot move.

We have written one guide for each of those situations, and dozens more, grouped on the guides page under If you need money this week, Something broke, and Buying, expanding, opening. Each one says which product fits, what it costs, and when the fast product is the wrong one.

A funder weights the most recent months. A landscaper applying in March is read on a thin winter; the same company applying in August is read on its best quarter. A restaurant applying in February is read on January. If you know a gap is coming, apply while the statements are strong and hold the money; the cost of six weeks of borrowing you did not yet need is far below the cost of a smaller, dearer offer taken in the trough.

And if you are already in the dip, send twelve months of statements, not three, so the underwriter sees the season rather than a decline.

The total repayment in dollars. Whether the price is interest or a fixed factor. The fixed fees. Whether the payment is daily or weekly and from which account. Whether there is a reconciliation clause if revenue drops, and whether it says the funder shall adjust the payment or merely may. Whether the agreement contains a confession of judgment. And whether you already carry another advance, because stacking a second on the first is where working capital stops working and starts sinking businesses.

In a dozen states the funder must hand you a standard disclosure of these terms before you sign. Ask for it everywhere.