What is a Working Capital Loan? Funding Options for Small Businesses

If you're a small business owner, you may have heard of working capital loans but might not be quite sure what they are and how you can utilize them. These loans are designed to provide the funds businesses need to cover their short-term expenses and keep operating smoothly. In this guide, we'll explain what working capital loans are and explore some funding options to help your small business grow.

What is a Working Capital Loan?

A working capital loan is a great way for small business owners to unlock growth opportunities in their businesses. This loan type allows business owners to access short-term financing to cover day-to-day expenses, like inventory and payroll. It provides an injection of cash that helps keep their businesses running smoothly until the customers pay their bills or make purchases.

Working capital loans are also beneficial because they can be obtained quicker than some other loan types. With this loan product, small business owners can keep operations going without sacrificing necessary investments in their business.

How Can You Use a Working Capital Loan for Your Business?

1. To purchase inventory

If you are a business that sells physical products, you likely need to purchase inventory in order to have something to sell. A working capital loan can be used to cover the costs of inventory, so that you can keep your business stocked and ready to sell.

2. To cover the costs of accounts receivable

If you have customers that pay on terms, you may need to wait 30, 60, or even 90 days for payment. In the meantime, you still have bills to pay and employees to salary. A working capital loan can provide the funds you need to cover these costs until your customers pay their invoices.

3. To cover the costs of employee salaries

Your employees are one of your most important assets, and you must ensure they are paid on time. A working capital loan can provide the funds you need to cover employee salaries so that you can keep your team happy and productive.

4. To invest in marketing and advertising

Marketing and advertising are essential for any business, but they can also be expensive. A working capital loan can help you cover the costs of marketing and advertising so that you can attract new customers and grow your business.

5. To supplement when unexpected expenses occur

Unexpected expenses always seem to pop up when you least expect them. A working capital loan can help you cover these unexpected costs so they don't strain your business finances.

6. To cover the costs of expansion

If you are looking to expand your business, a working capital loan can help you cover the costs associated with expansion, such as leasing new office space or hiring additional staff.

Pros and Cons of Using a Working Capital Loan to Grow Your Business


  • Have access to the cash you need for your short-term expenses
  • Increases your cashflow
  • Flexibility in what the capital can be used for
  • Collateral is typically not required


  • You will need to repay the loan in full plus interest
  • Personal credit may be impacted
  • There may be shorter term lengths compared to other loan types

How to Obtain a Working Capital Loan for Your Business

If a working capital loan is the right funding solution for your business, you'll want to find a lender that offers working capital loans. You can start by looking at banks, credit unions, small lenders, and even some online companies might offer working capital loans for small businesses.

The process for obtaining this type of loan is straightforward and can take less time than traditional bank loans; however, it can be difficult to qualify for if you do not have an established credit history or good collateral.

light bulb green iconFundid Recommendation: We're partnering with Accion Opportunity Fund (AOF), a non-profit financial support system that provides business owners – predominantly entrepreneurs of color, immigrants, and women - with access to capital, networks, and coaching.

AOF working capital loans are ideal for small businesses and sole proprietors that meet the following criteria:

  • At least one year in business
  • Annual revenue of at least $50,000
  • Located in all U.S. states except Montana, Vermont, Tennessee, North Dakota, South Dakota, and the District of Columbia
  •  570+ FICO credit score

AOF has support staff available to help in Spanish and English 7 days a week, 8 am - 8 pm, to guide you through the full process, from application to funding to post-loan approval.

Apply for a Working Capital Loan with Accion Opportunity Fund

The AOF working capital loan is a fixed-rate term loan ranging from $5,000 - $100,000 and 12 to 60 months in length, with no prepayment penalty. When you apply, you will get an initial estimate offer that you can select. The entire application process and getting funding can take two weeks for those who are responsive and quick to upload documents. If eligible, you will be immediately presented with multiple prequalified offers. Select the offer that works best for you and submit the requested documentation. Apply for a working capital loan with AOF.

Other Funding Options for Your Small Business

1. Grants

One option for business funding that is often overlooked is business grants. Grants are typically awarded by government agencies or private foundations to businesses working on innovative or impactful projects. While the competition for grants can be stiff, they can be a great source of funding for businesses. Search for business grants on the Fundid platform!

2. Crowdfunding

Another option for business funding is crowdfunding. With crowdfunding, businesses can solicit small amounts of money from a large number of people, typically through an online platform. Businesses typically offer rewards to people who contribute, such as discounts on products or exclusive content.

3. Business Line of Credit

Unlike other small business financing solutions where you have to pay back any money borrowed in one lump sum, a business line of credit allows businesses to access up to a certain amount at any time and with no fixed repayment schedule. Any withdrawals are paid back with interest over a predetermined period of time, and once the amount has been repaid, the funds can be reused.

4. SBA Loans

The Small Business Administration (SBA) offers a variety of loan programs that can be used to fund your small business. SBA loans are backed by the federal government and typically have lower interest rates than other types of loans. However, they can be more difficult to qualify for than other types of loans, so it is important to research the requirements before applying.

Related Reading: 11 Types of Loans to Grow Your Business

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