Best Working Capital Loans Of 2022 – Forbes Advisor

Working capital loans can help business owners fill gaps in funding, make up for seasonal fluctuations in revenue and cover payroll costs. What’s more, business owners can choose from several types of working capital loans to meet these varied needs, including term loans, lines of credit, SBA loans and invoice factoring.

Term Loans

A term loan is a type of financing extended by a bank, online lender or other financial institution that must be repaid over a set period of time—usually anywhere from a few months to 25 years. Loan typically amounts to span from $2,000 to $500,000, and interest rates can range from 6% to 99%.

Related: Best Small Business Loans

Business Lines of Credit

Business lines of credit let borrowers draw against a set amount of money on an as-needed basis. Instead of receiving money as a lump sum, a business owner can access the line of credit during the draw period, which usually lasts up to five years. Credit limits generally range from $2,000 to $250,000, and APRs extend anywhere from 10% to 99%.

SBA Loans

SBA loans are backed by the US Small Business Administration and are intended to help small business owners start, maintain and grow their businesses. There are a number of SBA loan programs intended for different purposes, circumstances and applicant qualifications—each with its own loan amounts, terms and rates. Popular SBA loan programs for working capital include:

  • SBA 7(a) loans. The SBA’s 7(a) loan program is the administration’s primary business loan offering. Loans are available up to $5 million and can be used for working capital, but they are also appropriate for buying real estate, refinancing debt and purchasing business supplies. As of Nov. 3, 2021, SBA 7(a) loan interest rates range from 5.5% to 9.75%.
  • CAPLines. Part of the 7(a) program, CAPLines are loans meant to provide small businesses working capital for short-term and cyclical—or seasonal—needs. Borrowers can choose from the Contract CAPLine loan, a seasonal line of credit, a builders line of credit and a working capital line of credit—all with $5 million borrowing limits and maximum 10-year repayment terms.
  • SBA Microloans. SBA Microloans are available to eligible small businesses that need financial assistance to get started or expand. Funds can be used for working capital, as well as the purchase of equipment and machinery, inventory and other operational costs. Loan amounts are available up to $50,000, and rates vary by lender but range from 8% to 13%.

Invoice Factoring

Invoice factoring is the process of selling a business’ invoices to a third-party invoice factoring company for a fee in exchange for a portion of the outstanding balances—generally around 85% to 95% of the total value. Once the invoices are sold, the factoring company is responsible for collections. The business receives the remainder of the funds minus any fees once the factoring company collects the invoices.

Invoice factoring enables small businesses to get cash quickly without qualifying for a traditional loan and wading through a lengthy loan application process.

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