Working Capital Line of Credit: What It Is and Best Options
Working Capital Line of Credit: What It Is and Best Options
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SBA 7(a) loan
Best for SBA working capital lines of credit
Max loan amount
$5,000,000
Min. credit score
650
Est. APR
10.50-14.00%
Pros
- Large borrowing maximums.
- Interest rates are capped.
- Long repayment terms available.
Cons
- Collateral is typically required.
- Longer processing times than online lenders.
SBA 7(a) loan
Best for SBA working capital lines of credit
Max loan amount
$5,000,000
Min. credit score
650
Est. APR
10.50-14.00%
Pros
- Large borrowing maximums.
- Interest rates are capped.
- Long repayment terms available.
Cons
- Collateral is typically required.
- Longer processing times than online lenders.
Wells Fargo Small Business Advantage® Line of Credit
Best for Bank working capital lines of credit
Max loan amount
$50,000
Min. credit score
680
Est. APR
12.00-14.00%
Pros
- Bank line of credit (backed by the SBA) with competitive interest rates.
- No annual fee or prepayment penalties.
- Available to borrowers with less than two years in business.
- Does not charge an origination fee.
Cons
- May take longer to fund than online lenders.
- Credit lines only available up to $50,000.
- Need a Wells Fargo checking account to access online bill pay.
Wells Fargo Small Business Advantage® Line of Credit
Best for Bank working capital lines of credit
Max loan amount
$50,000
Min. credit score
680
Est. APR
12.00-14.00%
Pros
- Bank line of credit (backed by the SBA) with competitive interest rates.
- No annual fee or prepayment penalties.
- Available to borrowers with less than two years in business.
- Does not charge an origination fee.
Cons
- May take longer to fund than online lenders.
- Credit lines only available up to $50,000.
- Need a Wells Fargo checking account to access online bill pay.
Max loan amount
$150,000
Min. credit score
600
Est. APR
36.00-99.00%
Pros
- Financing available within one business day after approval.
- Simple application with minimal documentation required.
- Low minimum credit score, time in business and annual revenue requirements.
- No prepayment penalties, account maintenance fees or inactivity fees.
Cons
- Rates are high compared with traditional banks.
- Weekly repayments required over a short term (maximum of 24 weeks).
Fundbox - Line of credit
Best for Working capital lines of credit for startups
Max loan amount
$150,000
Min. credit score
600
Est. APR
36.00-99.00%
Pros
- Financing available within one business day after approval.
- Simple application with minimal documentation required.
- Low minimum credit score, time in business and annual revenue requirements.
- No prepayment penalties, account maintenance fees or inactivity fees.
Cons
- Rates are high compared with traditional banks.
- Weekly repayments required over a short term (maximum of 24 weeks).
Max loan amount
$100,000
Min. credit score
625
Est. APR
35.90-84.90%
Pros
- Fast access to working capital.
- Accepts borrowers with a minimum credit score of 625.
- Streamlined application process with minimal documentation required.
- Can be used to build business credit.
Cons
- Not available in North Dakota.
- May require frequent weekly payments.
- Interest rates can be high compared with traditional lenders.
OnDeck - Line of credit
Best for Unsecured working capital lines of credit
Max loan amount
$100,000
Min. credit score
625
Est. APR
35.90-84.90%
Pros
- Fast access to working capital.
- Accepts borrowers with a minimum credit score of 625.
- Streamlined application process with minimal documentation required.
- Can be used to build business credit.
Cons
- Not available in North Dakota.
- May require frequent weekly payments.
- Interest rates can be high compared with traditional lenders.
Max loan amount
$100,000
Min. credit score
625
Est. APR
35.00-80.00%
Pros
- Flexible qualification requirements.
- No prepayment penalties.
- Funds available by next business day after approval.
Cons
- Most borrowers are subject to a 2% draw fee.
- Not available in all U.S. states.
Headway Capital - Line of credit
Best for Working capital lines of credit for bad credit
Max loan amount
$100,000
Min. credit score
625
Est. APR
35.00-80.00%
Pros
- Flexible qualification requirements.
- No prepayment penalties.
- Funds available by next business day after approval.
Cons
- Most borrowers are subject to a 2% draw fee.
- Not available in all U.S. states.
Chase - Business line of credit
Best for High-limit working capital lines of credit
Max loan amount
$500,000
Min. credit score
700
Pros
- Bank credit line with competitive interest rates.
- Large maximum line limit of $500,000.
- Can apply online for up to $250,000.
Cons
- Must have a Chase Business Banking account to apply online.
- Not available in Alaska and Hawaii.
- Annual fee may apply.
- Limited information on terms and fees available online.
Chase - Business line of credit
Best for High-limit working capital lines of credit
Max loan amount
$500,000
Min. credit score
700
Pros
- Bank credit line with competitive interest rates.
- Large maximum line limit of $500,000.
- Can apply online for up to $250,000.
Cons
- Must have a Chase Business Banking account to apply online.
- Not available in Alaska and Hawaii.
- Annual fee may apply.
- Limited information on terms and fees available online.
American Express® Business Line of Credit*
Best for Working capital lines of credit for low-revenue businesses
Max loan amount
$250,000
Min. credit score
660
Learn More
with Fundera by NerdWallet
Pros
- Streamlined application process with minimal paperwork.
- Financing from $2,000 to $250,000 available.
- Accepts borrowers with a minimum FICO score of at least 660 at the time of application.
- Monthly repayment schedule (as opposed to daily or weekly).
- No prepayment penalties, account maintenance fees or draw fees.
Cons
- Must have online checking or PayPal account to verify cash flow.
- Complex monthly fee structure makes it difficult to compare costs to other lenders.
American Express® Business Line of Credit*
Best for Working capital lines of credit for low-revenue businesses
Max loan amount
$250,000
Min. credit score
660
Learn More
with Fundera by NerdWallet
Pros
- Streamlined application process with minimal paperwork.
- Financing from $2,000 to $250,000 available.
- Accepts borrowers with a minimum FICO score of at least 660 at the time of application.
- Monthly repayment schedule (as opposed to daily or weekly).
- No prepayment penalties, account maintenance fees or draw fees.
Cons
- Must have online checking or PayPal account to verify cash flow.
- Complex monthly fee structure makes it difficult to compare costs to other lenders.
What is a working capital line of credit?
A working capital line of credit is used specifically to finance short-term operating expenses, as opposed to investing in one purchase or long-term project. You might use this business line of credit to pay for rent, payroll, utilities, inventory, supplies, emergency expenses, employee training or large order fulfillments.
What is working capital?
Working capital is the difference between your business’s current assets (cash, accounts receivable, inventory) and its current liabilities (accounts payable and debts). This metric provides an evaluation of your business’s short-term financial health and refers to the capital that you have available to spend on day-to-day expenses.
How a working capital line of credit works
A working capital line of credit allows you to borrow up to a certain limit and pay interest only on the funds you draw.
You then repay the money you’ve borrowed, usually weekly or monthly. You can continue to draw on the line as needed — provided you make timely payments and don’t exceed your credit limit.
Working capital credit lines can be secured or unsecured. Secured business lines of credit are backed by physical collateral, like inventory or equipment, whereas unsecured lines don’t require physical collateral.
Working capital loan vs. line of credit
The main distinction between working capital loans and working capital lines of credit is the way that they’re structured. Whereas a credit line offers a specific amount of funds that you can draw from as needed, a working capital loan provides a lump sum of cash upfront that you repay over a set period of time.
As a result, you may find some working capital loans — especially those issued by online lenders — offer larger funding amounts and longer repayment terms compared with line of credit options. Ultimately, however, available financing varies largely based on the lender and your qualifications.
Pros and cons of working capital lines of credit
Pros
You can use a working capital line of credit for a wide variety of purposes, including paying rent, buying inventory or covering emergency expenses. These products are an ideal short-term financing option for bridging cash flow gaps, especially during seasonal changes.
Most working capital lines of credit are revolving which is different from a business term loan. You can draw from your credit line whenever you need access to funds and pay interest only on the money you borrow. And as long as you make your payments on time, you can continue to draw on the line, up to your limit.
Some online lenders can provide capital in as little as 24 hours, and most can within a few business days. Traditional lenders, like banks and credit unions, are typically slower to fund.
Cons
Annual percentage rates (APRs) on working capital lines of credit can vary greatly — ranging from 10% to 80%. Depending on the lender, you may also face origination fees, account maintenance fees, draw fees or other additional charges. Although online lenders are fast to fund, they’re likely to charge higher rates as a result. Traditional lenders are more likely to offer the most competitive interest rates and terms.
As a type of short-term financing, working capital lines of credit might require more frequent payments than some other business loan options. Although bank and SBA lenders may offer monthly payments, many online lenders will require a weekly repayment schedule.
How to choose the right working capital line of credit
Working capital lines of credit can be issued by banks, credit unions and online lenders. In addition to offering their own lines of credit, some banks and credit unions also offer SBA programs such as the SBA Working Capital Pilot program or SBA CAPLines which can help you meet your short-term financing needs.
Here’s what you can do to find the right working capital line of credit for your business.
1. Look at the qualification requirements
Determining where you can qualify for a working capital line of credit can help you narrow down your options. Requirements vary from lender to lender, but they’ll typically consider the following criteria:
- Personal credit score. In general, the stronger your credit score, the more financing options you’ll have available. Traditional lenders will usually require that you have fair to good credit — ideally a score of 650 or higher — to qualify for their products. Online lenders, on the other hand, are often more flexible. You may be able to qualify for a credit line with a personal credit score as low as 600.
- Annual revenue. Minimum annual revenue requirements can range, but overall, you should be able to show your lender a history of solid financial performance. It can also be helpful to present strong cash flow and sales projections.
- Time in business. Similar to your credit score, lenders prefer to see that you have an established business history. Some (but not all) banks will ask to see two or more years in business, whereas online lenders may require only six months or more.
2. Research and compare lenders
Once you have an understanding of your business’s qualifications, you can begin to research different small-business lenders. The right lender for you will depend on a variety of factors.
For example, if speed is your top priority, an online lender will likely be able to fund your credit line the fastest. On the other hand, if you’re looking for the lowest possible interest rate you can get, you should start your search with a bank or credit union.
As you compare lenders, you should consider information including:
- Credit limits. Your ideal credit limit will vary based on your specific working capital needs, and how frequently you will repay your credit line. Understanding what you’re looking for can help you narrow down lenders.
- Interest rates and fees. The best interest rates and fees typically come from banks and credit unions and usually require strong personal credit and business revenue.
- Repayment terms. Make sure the available repayment terms work with your business model and the income you know you have coming in.
- Funding speed. Keep in mind that you may be taking multiple draws instead of just one lump sum, so the speed of funding won’t just matter up front. Considering the ease of the lender’s process can save you time and logistical headaches later on.
- Application process. Online lenders typically have streamlined application processes, making them ideal if you need to access capital fast. Though they can be cheaper, banks and CDFIs can take much longer to process applications.
- Customer support. With a line of credit, you may need to interact with your lender about your account more frequently than with a term loan, so look for multiple contact channels and good customer support ratings.
- Lender reputation. Look at reviews on sites like Trustpilot and the Better Business Bureau to make sure your lender is reputable and trustworthy.
3. Understand the application process
Although specific requirements vary by lender, you’ll likely be asked to provide:
- Personal information about you and any other business owners.
- Basic business information and paperwork.
- Personal and business bank statements.
- Personal and business tax returns.
- Business financial statements (e.g., profit and loss statement, balance sheet).
If you’re working with an online lender, you may have the option to digitally connect your financial accounts to expedite the application process. Some banks and credit unions may allow you to apply online, but others might require you to visit a branch to submit an application in person.
Last updated on May 16, 2024
Methodology
NerdWallet’s review process evaluates and rates small-business loan products from traditional banks and online lenders. We collect over 30 data points on each lender using company websites and public documents. We may also go through a lender’s initial application flow and reach out to company representatives. NerdWallet writers and editors conduct a full fact check and update annually, but also make updates throughout the year as necessary.
Our star ratings award points to lenders that offer small-business friendly features, including: transparency of rates and terms, flexible payment options, fast funding times, accessible customer service, reporting of payments to business credit bureaus and responsible lending practices. We weigh these factors based on our assessment of which are the most important to small-business owners and how meaningfully they impact borrowers’ experiences.
NerdWallet does not receive compensation for our star ratings. Read more about our ratings methodology for small-business loans and our editorial guidelines.
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