Working capital loans are a flexible funding option for small businesses that need quick cash to cover everyday expenses like payroll, rent and operating costs. Cyclical companies also use this type of loan to aid in maintaining positive cash flow during slow seasons.

With competitive interest rates and short repayment terms, fast working capital loans are an attractive financing possibility for any small business. However, some high-risk industries will face more stringent requirements when applying for a loan at many banks and credit unions.

High-Risk Industries That May Struggle to Get a Loan

  • Accounting
  • Agriculture
  • Alcohol
  • Cannabis
  • Construction
  • Finance
  • Hotels
  • Insurance
  • Manufacturing
  • Mining
  • Real Estate
  • Restaurants
  • Retail
  • Transportation
  • Wholesale

If your company is classified as “high-risk” and your small business loan online application is rejected, you may still be able to obtain funding by backing the loan with business assets or another form of collateral. With a collateral loan, you are more likely to be approved and you may qualify for a larger amount of money.  The main forms of collateral include real estate, inventory financing, blanket liens, outstanding invoices, and financial assets. Each type has a varying degree of risk to both the lender and the borrower.

Types of Collateral

Real Estate – The loan is backed by your property or land. In the event of a default, the land can be seized by the lender.

Inventory Financing – Certain inventory is used as collateral and can be sold by the lending company if a default occurs.

Blanket Lien – The lender has the legal right to take possession of or sell any of the business property or assets to satisfy the debt obligation.

Outstanding Invoices – The lender may collect unpaid invoices from customers of the business until the debt is paid.

Financial Assets – The lender may use an individual’s bank accounts or other financial assets as security to repay borrowed money.

Types of Working Capital Loans

Term loan – This provides the business with a lump sum of upfront cash and is repaid in equal installments over a set period.

Business line of credit – This provides a company with access to credit up to a set limit. The company may pull and pay back funds as it sees fit so long as its payments are timely and below the limit.

Invoice Factoring – This is an advance on the business’s outstanding invoices from customers. The business sells unpaid invoices to a factoring company who then pays a percentage of their value upfront. The factoring company then keeps a small fee when collecting customer payments on behalf of the business. The industries that benefit the most from invoice factoring are oil & gas, transportation (trucking), manufacturing, wholesale, and any type of business with a long payment cycle.

Merchant cash advance – This provides a company with instant cash and is paid back with a percentage of business sales. MCA’s are often used by companies who accept a high volume of payments by cash, check, or credit card, such as restaurants or retailers.

SBA loans – A government-guaranteed loan made by commercial lenders, typically requiring both collateral and a personal guarantee. This puts your credit score and personal assets on the line if you default on repayment. Of all the financing methods, small business loans are the most difficult to qualify for due to additional requirements like background checks.

Working Capital Loans for Startups and New Businesses

Online alternative lenders are the main source of working capital loans for startups and new businesses. These lenders offer more favorable annual percentage rates and less strict requirements to qualify for business funding quickly. The primary borrowing options are term loans, business lines of credit, merchant cash advances, and SBA loans.

A business loan for a new business typically requires a credit score of 650 or higher, 2 or more years of credit history, and no recent late payments, liens, charge-off, or bankruptcies. A business partner or spouse who meets the requirements may also apply. Financing options for startups would be a line of credit up to $150,000, personal term loans with no upfront fees, and up to $250,000 in total new business funding.

Small business term loans, business lines of credit, and merchant cash advances adding up to a total of $500,000 are available to existing companies with a proven track record for many operating expenses, such as payroll. The requirements to apply are a credit score of 600 or higher, average sales of $15,000 over the past 6 months, and 6 months of bank statements. Real estate and cannabis companies are often restricted, and therefore urged to consider first-time business loans as an alternative source of financing for fast funding.

Small business equipment loans are often term loans of up to $250,000. To qualify for zero down equipment loans, companies must have a credit score of 650 or higher, 3 years in business, and the equipment must be critical to business operations. Company jets, planes, helicopters, and boats are excluded. This is the preferred method of financing for construction companies.

Choosing the Right Kind Funding for Your Company

It costs money to start a business and it requires a consistent cash flow to keep it running. With so many different financing options to research and lenders to review, it can be challenging to choose the right kind of funding for your company. Even if you’re able to find a suitable financing option to get an instant business loan, strict qualification requirements often result in businesses only being approved for a fraction of the amount they requested.   That is why we recommend working with a financial services provider to secure capital on behalf of your business. Let a trusted team of professionals with more than 30 years of experience get you the most money as quickly as possible.

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