types of loans / Unsecured Small Business Loans /

Working Capital Loans


Working capital loans provide short-term funding to cover expenses without needing collateral up front.

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What is a working capital loan?

Working capital, also known as operating capital, is the cash available for the day-to-day expenses of running a business. It represents a company's efficiency and short-term financial performance. It's vital to have cash flow to cover payroll, inventory, marketing campaigns and any other financial expenses that occur within daily operations. Businesses should focus on maintaining enough operating capital to sustain growth.

It can be challenging for small businesses to obtain small business loans for working capital from traditional lenders who typically require extensive collateral or other guarantees that the money will be repaid. In addition, it is becoming more common for traditional lenders to require substantial personal guarantees, such as the business owner's home or other highly valuable collateral.

A working capital loan allows you to continue your daily operations should you encounter untimely cash flow gaps, seasonal lulls or need to finance new equipment. By utilizing working capital loans, you can invest in your business so that you can ultimately cover your operating expenses.

What types of working capital loans are available?

  • Bank credit line: An agreement made with a financial institution wherein a customer may borrow up to the maximum of a fixed amount. These can be secured and unsecured loans.
  • Short-term loans: These usually carry a fixed interest rate and payment period. This type of small business loan is often secured, and you may be able to get short-term debt without collateral if you have a good history with your bank.
  • Funding via personal resources: A home equity line (HELOC) or investments from friends or family are common for these types of loans. This source of funding can be a good fit for new businesses without an established credit history or transaction data.
    • HELOC: A HELOC requires you to put your home equity on the line, similar to a second mortgage.
    • P2P or Family: With a loan from family or friends, you need to be mindful that they've lent you money and expect to paid back. Failure to do so could result in severed ties between you and a loved one.
  • Factoring or Accounts Receivable Financing: This is when a business sells its invoices, or receivables to a company for a cash advance. The company makes the collection of payments easier for you by collecting invoices directly from your customers. Factoring accelerates cash flow rather than waiting 30, 60 or even 90 days to get paid. Factoring companies typically look for established businesses but new businesses like restaurants with high transaction volume may also benefit.
  • Trade Credit: Your supplier may offer an inventory line of credit if you have an established history of paying on time. Generally, the trade creditor will do a thorough check of your company's credit history.
  • Equipment Loan/ Lease Financing: Businesses need to upgrade and replace equipment to continue operations and remain efficient. An equipment loan or lease financing product provides the capital to buy or lease key machines, parts or appliances to keep you running. These products offer peace of mind knowing your small business will be ready to face any situation should something break.

Is a working capital loan right for my business?

A working capital loan is one of the easiest ways to harness the potential of your business. These types of small business loans often act as unsecured debt, so they don't require you to provide traditional collateral. They can be a great solution for businesses that are small, just starting out, don't have traditional collateral or are simply in a period of low cash flow.

Where does working capital come from?

Working capital is calculated by subtracting current liabilities from current assets.

CURRENT ASSETS - CURRENT LIABILITIES = WORKING CAPITAL

What are the benefits of a working capital loan?

Your business is better prepared to handle any challenges or opportunities that arise.

Even a business that has billions of dollars in fixed assets will quickly find itself in bankruptcy if it can't pay monthly bills. Under the best of circumstances, poor working capital leads to financial pressure on a company, increased borrowing and late payments to creditors – all of which result in a lower credit rating. A lower credit rating means lenders charge a higher interest rate on money borrowed. Applying for and using a working capital loan when you need it most can keep you in business when shortages in resources occur.

You can maintain ownership of your business.

If you were to receive funding from an equity investor, you would likely have to give up a generous percentage of your company in return. In turn, you are giving up a portion of your decision-making power. If you borrow funds from the bank or another financial institution, you are obligated to make the agreed-upon payments on time – but that's where your obligations end. You can run your business without outside interference.

Collateral is not always required.

In general, there are two types of loans: secured and unsecured. Working capital loans come in both types, although many are unsecured. Unsecured working capital loans are given only to those small businesses that have a very good credit history and/or have little to no risk of default. If you qualify for an unsecured loan, you won't need to put up your business, inventory or other assets to secure the loan. Of course, paying the loan back is critical given the costs of defaulting.

Shorter terms are ideal for short-term problems.

Working capital loans are designed to infuse money into your business for the short term which is ideal if your need is also short term. You won't have to plan for years of monthly payments to pay back what you borrowed.

Can you use the money however you see fit.

Banks and other lenders have few – if any – restrictions on how you use the money. Whether you need to maintain your operations or make an investment, how you use the funds is your decision.

The application process is straightforward.

Applying for a typical business or personal loan can take up a lot of your valuable time and may not end in an approval. It often includes extensive paperwork, a lengthy approval process, putting up collateral, making fixed monthly payments and having restrictions on how you use the money. A working capital loan available online is a great way to access funds without the long-waiting period hassles associated with a traditional bank loan. Qualification is generally determined within a few days, if not sooner, of applying resulting in a faster turnaround when compared to traditional lenders. This makes online working capital loans more appealing for those who need quicker access to capital.

Online lending platforms like Kabbage can be a great way to access capital quickly and efficiently without the extensive documentation and application processing time of traditional loan providers. We offer ongoing access to working capital that can help you cover routine businesses expenses. Through the simple, online approval process, we look at your business performance in real time to determine the amount for which you qualify.

Get the security of a business line of credit

Qualify for a line up to $250,000

There's a better way to fund your business

Accessing small business funding shouldn't be complicated or time-consuming, so Kabbage developed a simple way to get up to $250,000.2.

up to a $250k line of credit1
qualify in 10 minutes2
choose 6 or 12 month terms1

Why Kabbage

Flexible Funds
You decide when to use your funds and how much to take. As long as you have available funds, you can withdraw every time you need capital.
Transparent Terms
Kabbage loans have simple, monthly payments with no origination fees or prepayment penalties. You can review your payment schedule before taking a loan so there won't be any surprises.
Simple Process
Securely link your business information online to get an automatic financial review. This lets us evaluate your business right away without requiring you to track down financial statements.
Convenient Access
Withdraw from your line by logging into your computer, using our mobile app or swiping your Kabbage Card. You'll have the security of a line of credit you can use whenever you need it, wherever you are.
Trusted by Thousands
Kabbage customers have securely connected more than 1 million data sources to Kabbage. We're A+ rated by the Better Business Bureau and are TRUSTe certified for our commitment to customer privacy.
Personal Service
From applying to managing your account and making the most of your capital, our in-house team of experts is here to help when you need it.