How to Get a Short Term Business Loan Fast

If your business invoices other companies, you already know the frustration of waiting 30, 60, or even 90 days for payment. The work is done, the invoice is sent, and now you wait while payroll, rent, and supplier bills keep coming. Invoice factoring solves this problem by turning your unpaid invoices into immediate cash, giving you the working capital to keep operations running without waiting for your customers to pay.

At Fundwell, we help B2B businesses solve this exact problem. As a lending marketplace, we can connect you with invoice factoring providers, but we have also built a B2B payments and invoice financing platform that takes a completely different approach to the same cash flow challenge. This guide explains how invoice factoring works, what it costs, how it compares to modern alternatives, and how to decide which approach is the right move for your business.

What Is Invoice Factoring

Invoice factoring is a form of financing where you sell your outstanding invoices to a third party, known as a factoring company, in exchange for an immediate cash advance. The factoring company pays you a percentage of the invoice value upfront, typically 80% to 95%, and then collects payment directly from your customer. Once the customer pays in full, the factoring company sends you the remaining balance minus a small fee.

Because factoring involves selling an asset (your receivable) rather than borrowing money, it is technically not a loan, as the Federal Trade Commission notes when distinguishing between different forms of business credit. This distinction matters because it means factoring typically does not add traditional debt to your balance sheet, and qualification depends more on your customers' creditworthiness than your own.

How Invoice Factoring Works Step by Step

The factoring process follows a straightforward sequence.

• You deliver your product or service and issue an invoice to your customer with standard payment terms (typically net 30, 60, or 90).
• You submit the invoice to a factoring company. The factor verifies the invoice and evaluates your customer's ability to pay.
• The factoring company advances you 80% to 95% of the invoice value, usually within 24 to 48 hours.
• Your customer pays the factoring company directly on the original payment terms.
• The factoring company releases the remaining balance to you, minus a factoring fee of typically 1% to 5%.

Invoice Factoring Example

Here is how factoring looks with real numbers. Say your business completes a $50,000 project and invoices the client with net-30 payment terms. Instead of waiting a month for that cash, you submit the invoice to a factoring company.

‍

In this example, you receive $45,000 within a day or two instead of waiting 30 days. The factoring company earns $1,250 for the service. You receive the remaining $3,750 once your customer pays. The total cost is $1,250 on a $50,000 invoice, which works out to 2.5%.

Invoice Factoring vs Invoice Financing

These two terms are often used interchangeably, but they work differently. Understanding the distinction helps you choose the right option.

With invoice factoring, you sell your invoices to a factoring company. The factor takes over collection and communicates directly with your customer. You give up some control over the customer relationship, but you also offload the collections work.

With invoice financing (sometimes called invoice discounting), you borrow against your invoices as collateral but retain ownership and continue collecting payments yourself. Your customers typically do not know a third party is involved.

There is also a newer approach that goes beyond both of these models. B2B payment platforms like Fundwell let you offer your customers flexible payment options directly, including net terms (15, 30, 60, or 75 days), installment plans, and checkout financing. You get paid upfront in days while your buyers pay on the terms that work for them. Unlike factoring, there is no third party collecting from your customers, no selling your invoices, and no awkward notifications. You stay in control of the entire relationship while turning payment flexibility into a competitive advantage that drives higher order values.

‍

Both options help you access cash tied up in receivables. Fundwell's marketplace can connect you with factoring and invoice financing providers if either of these traditional approaches fits your situation. But there is also a third option worth considering. Fundwell's B2B payments platform lets you offer in-house net terms and installments so your customers can buy more while you get paid in days. The right choice depends on whether you need to accelerate cash from existing invoices or want to transform how your business handles B2B payments entirely.

How Much Does Invoice Factoring Cost

Factoring costs are structured differently from traditional loan interest rates. Understanding the fee components helps you calculate the true cost and compare offers accurately.

Factoring Fees

The primary cost is the factoring fee, also called the discount rate. This typically ranges from 1% to 5% of the invoice value and is charged per invoice or per billing period. Some factoring companies use a flat fee structure, while others use a tiered or variable model where the fee increases the longer the invoice remains unpaid. For example, a factor might charge 2% for the first 30 days and an additional 0.5% for every 10 days after that.

Additional Fees to Watch For

Beyond the factoring fee itself, some companies charge additional fees that can add up quickly. Common ones include:

• Application or setup fees to establish your factoring account
• Due diligence fees for verifying your customers' creditworthiness
• ACH or wire transfer fees for each advance payment
• Monthly minimum fees if you do not factor enough invoices to meet a threshold
• Early termination fees if you end the contract before the agreed term

Always ask for a complete fee schedule before signing a factoring agreement. The factoring rate alone does not tell the full story.

What Determines Your Factoring Rate

Several factors influence the rate a factoring company offers you.

• Your customers' creditworthiness. Since the factor is relying on your customer to pay, their credit profile matters more than yours. Invoices from large, established companies typically get better rates.
• Invoice volume. Factoring larger volumes or committing to ongoing agreements usually earns you lower rates.
• Industry. Some industries, like trucking, staffing, and construction, have well-established factoring markets with competitive rates. Others may see higher fees due to perceived risk.
• Payment terms. Shorter payment terms (net 30) typically cost less than longer ones (net 90) because the factor's money is tied up for less time.
• Recourse vs non-recourse. With recourse factoring, you are responsible if your customer does not pay. With non-recourse factoring, the factor absorbs that risk, which means higher fees.

{{cta-light}}

Types of Invoice Factoring

Not all factoring arrangements are the same. The right structure depends on your business model, invoice volume, and risk tolerance.

Recourse vs Non-Recourse Factoring

In recourse factoring, you agree to buy back any invoices your customers fail to pay. This is the more common and less expensive option because the factoring company takes on less risk. Non-recourse factoring shifts the risk of non-payment to the factor, but you pay higher fees for that protection. Non-recourse agreements often come with limitations, such as only covering customer insolvency rather than all reasons for non-payment.

Spot Factoring vs Contract Factoring

Spot factoring lets you factor individual invoices on an as-needed basis without committing to a long-term contract. This flexibility is ideal for businesses with occasional cash flow gaps. Contract factoring requires you to factor a minimum volume of invoices over a set period, usually six to 12 months. In exchange for that commitment, you typically receive lower factoring rates.

Notification vs Non-Notification Factoring

With notification factoring, your customer is informed that their invoice has been assigned to a factoring company and that they should send payment to the factor directly. This is the standard arrangement. Non-notification (or confidential) factoring keeps the third-party involvement hidden from your customer. You continue to collect payments and forward them to the factor. Non-notification arrangements are less common and usually cost more.

Industries That Commonly Use Invoice Factoring

Invoice factoring is especially popular in industries where long payment cycles are the norm and cash flow gaps are a constant operational challenge.

• Trucking and freight. Carriers often wait 30 to 90 days for payment from brokers or shippers. The Federal Reserve reports that 51% of small businesses face uneven cash flow, and transportation is one of the hardest-hit sectors. Freight factoring is so common that it has its own specialized market, with factoring companies that cater exclusively to transportation businesses.
• Staffing and temp agencies. Staffing companies pay their workers weekly but may not receive client payment for 60 or more days. Factoring bridges this gap.
• Construction and contractors. Construction projects involve milestone billing and long payment cycles, making factoring a practical way to fund ongoing labor and material costs.
• Manufacturing. Manufacturers invest heavily in raw materials and labor before receiving payment. Factoring helps fund production cycles.
• Professional services and consulting. Businesses that invoice clients on net-30 or net-60 terms can use factoring to maintain steady cash flow between projects.

Fundwell works with businesses across all of these industries. Through our marketplace, we can connect you with factoring providers that specialize in your sector. For businesses looking to move beyond traditional factoring, Fundwell's B2B payments platform offers a different approach: instead of selling your invoices after the fact, you offer your buyers flexible payment terms at the point of sale, get paid upfront, and eliminate the collections process altogether. Fundwell platform users see an average 30% increase in order values when they offer buyers payment flexibility at checkout.

How to Qualify for Invoice Factoring

One of the advantages of invoice factoring over traditional loans is that qualification is based primarily on your customers' creditworthiness rather than your own. Here is what factoring companies typically evaluate.

Your Customers' Credit

Since the factoring company is counting on your customers to pay, they will assess the credit profiles of the businesses you invoice. If your clients are established, creditworthy companies, you are more likely to qualify and receive favorable rates. Invoices from government agencies or large corporations are often the easiest to factor.

Your Invoices

Factoring companies want to see legitimate, verified invoices for work that has been completed. They will typically not advance against invoices for work still in progress or invoices that are already significantly past due. Clean, well-documented invoices with clear payment terms make the process smoother.

Your Business Basics

While your personal credit score is less important than with traditional lending, factoring companies still require basic business documentation. This generally includes:

• A completed factoring application
• An accounts receivable aging report
• A business bank account
• Tax identification number (EIN)
• Government-issued identification

Most factoring companies can complete their due diligence and begin funding within a few business days. Some can advance funds within 24 hours of receiving verified invoices.

Pros and Cons of Invoice Factoring

Factoring can be a powerful cash flow tool, but it is not the right fit for every business. Here is an honest look at both sides:

‍

Red Flags to Watch For in Factoring Agreements

Not every factoring company operates transparently. Before signing any agreement, look out for these warning signs.

• Hidden fees buried in the contract. If the fee schedule is not clear and upfront, ask for a plain-language breakdown of every possible charge.
• Long lock-in periods with steep termination penalties. Some contracts lock you in for 12 to 24 months with significant penalties for early exit. Shorter commitments or spot factoring options provide more flexibility.
• Unclear recourse terms. Make sure you understand exactly what happens if your customer does not pay. Some "non-recourse" agreements have carve-outs that effectively make them recourse arrangements.
• Unusually high advance rates with hidden costs. A 98% advance rate sounds great until you realize the factoring fees, wire fees, and monthly minimums eat into your margins more than a standard 90% advance with lower fees.
• No transparency about customer communication. You should know exactly how the factoring company will interact with your customers and what they will say. Poorly handled collections can damage your client relationships.

{{cta-dark}}

Alternatives to Invoice Factoring

If factoring does not feel like the right fit, several other options can help you solve the same underlying cash flow problem.

Fundwell's Lending Marketplace

If you decide invoice factoring is the right fit, Fundwell's marketplace can match you with factoring providers that specialize in your industry and invoice volume. You can also explore other financing options through the marketplace, including lines of credit, revenue-based financing, and term loans, all through a single application.

B2B Payments and Embedded Financing

This is where the industry is heading. Instead of reacting to slow-paying invoices by selling them to a third party, Fundwell's B2B payments platform lets you offer your customers flexible payment options upfront. Your buyers can choose net terms (15, 30, 60, or 75 days), split large invoices into installments, or access same-day financing up to $5M at checkout. You get paid in days, your customers get the flexibility they need to say yes to bigger orders, and nobody is selling invoices to a factoring company. Fundwell platform users see an average 56% revenue increase and 30% higher order values because payment flexibility removes the biggest barrier to closing larger B2B deals.

Business Line of Credit

A business line of credit provides revolving access to capital that you can draw on whenever cash gets tight. If your cash flow gaps are not tied specifically to receivables, a line of credit may be more versatile. Our guide on using lines of credit for cash flow covers this in detail.

Revenue-Based Financing

Revenue-based financing ties your repayment to your monthly revenue, providing flexibility similar to factoring but without the per-invoice fee structure. This works well for businesses with steady revenue that want working capital without selling individual invoices.

Short-Term Business Loan

A short-term business loan gives you a lump sum with predictable payments. If you need a specific amount for a defined period, a loan may be simpler and more cost-effective than ongoing factoring.

Turn Your Receivables into Working Capital

Waiting for invoices to clear should not hold your business back. Invoice factoring is one way to solve that problem, but it comes with tradeoffs: fees on every invoice, a third party talking to your customers, and contracts that can lock you in.

If factoring fits your situation, Fundwell's lending marketplace can connect you with providers that match your industry and volume. But if you are a B2B business looking for a more modern approach, Fundwell's invoice financing and payments platform offers a fundamentally different solution. Instead of selling invoices after the fact, you offer your buyers flexible payment options at checkout, get paid in days, and increase your average order value in the process. No factoring companies, no awkward customer notifications, no per-invoice fees eating into your margins.

Fundwell's marketplace also connects you with working capital loans, lines of credit, and revenue-based financing for businesses that need capital beyond receivables. Whatever your cash flow challenge, the process starts with a simple application and funding can happen in as little as 24 hours.

See what you qualify for today and stop letting slow payments hold your business back.

Frequently Asked Questions

Is invoice factoring a good idea for small businesses?

Invoice factoring can be an excellent option for small businesses that invoice other companies and deal with long payment cycles. It provides fast access to cash without adding traditional debt, and qualification is based more on your customers' credit than your own. The main tradeoff is the factoring fee, which reduces your margin on each invoice. For businesses with strong receivables and tight cash flow, the cost is often worth the benefit of consistent working capital.

What credit score do you need for invoice factoring?

Most factoring companies do not have strict personal credit score requirements. Because the transaction is based on your customers' ability to pay rather than your own creditworthiness, businesses with lower credit scores can often still qualify. Some factors may review your credit as part of their overall assessment, but it is rarely the deciding factor. What matters most is the quality and reliability of your accounts receivable.

How fast can you get funded with invoice factoring?

Many factoring companies can fund within 24 to 48 hours after verifying your invoices. The initial setup, including account approval and due diligence on your customers, typically takes three to seven business days. Once your account is established, subsequent advances on new invoices can often happen within a single business day.

Does invoice factoring affect your credit score?

Invoice factoring typically does not appear on your credit report because it is structured as a sale of an asset rather than a loan. This means it should not directly impact your personal or business credit score. However, if you use recourse factoring and fail to buy back an unpaid invoice, the factoring company may pursue collections, which could eventually affect your credit.

Can you factor invoices from government contracts?

Yes. Government invoices are among the most commonly factored receivables because government agencies are considered highly creditworthy. However, factoring government invoices involves additional legal requirements, including compliance with the Assignment of Claims Act, which governs how federal receivables can be transferred. Many factoring companies specialize in government contract factoring and can guide you through these requirements.

You have a business idea, a plan, and the drive to make it work. But when you start looking for funding, you hit a wall. Most lenders want one-two years of operating history, strong revenue, and established credit. When you are just getting started, you have none of that. So, do startup business loans actually exist, or is the whole concept a myth?

The short answer: yes, they exist. But the landscape looks very different from what established businesses have access to. There is no single product labeled "startup business loan" sitting on a shelf waiting for you. Instead, there are several funding paths specifically designed for new businesses, each with different requirements, costs, and tradeoffs. At Fundwell, we work with new business owners regularly and help them navigate these options, so we know which paths actually lead to funding and which are dead ends.

This guide breaks down what is realistically available, what you need to qualify, and how to give yourself the best shot at getting funded as a new business.

Why Getting a Business Loan as a Startup Is Harder

It is not your imagination. Lenders are more cautious with new businesses, and the numbers confirm it. According to the Bureau of Labor Statistics, about one in five new businesses close within their first year, and nearly half do not survive past five years. A major reason? Insufficient capital. Newer firms are also significantly less likely to receive the full amount of financing they request compared to established businesses. The primary reason is risk. A business with no track record gives lenders very little to evaluate beyond the owner's personal credit and the strength of their business plan.

That said, "harder" does not mean "impossible." It means you need to know where to look and what to prepare. The lenders and products that work for a five-year-old company generating $500,000 in annual revenue are different from the ones that work for a business that launched three months ago.

Startup Business Loan Options That Actually Work

If you are a new business owner looking for capital, these are the realistic funding paths available to you. Each has its own qualification criteria, and the right one depends on how far along your business is and what you need the money for.

SBA Microloans

The SBA Microloan program provides up to $50,000 through nonprofit intermediary lenders, with the average microloan coming in around $13,000 according to current SBA data. These loans are specifically designed for startups and newer businesses that cannot qualify for larger SBA programs. Interest rates typically range from 8% to 13%, and repayment terms go up to six years. Many microloan providers also offer business training and mentorship as part of the package, which can be valuable when you are still building your operational foundation.

The tradeoff is the loan size. If you need more than $50,000, you will need to look at other options or combine a microloan with additional funding.

SBA 7(a) Loans

The SBA 7(a) program is the most widely used government-backed small business loan, with maximums up to $5 million. While these loans are available to startups, the qualification bar is higher than microloans. You will typically need a strong personal credit score (680+), a solid business plan, and often some form of collateral or personal guarantee. Current SBA 7(a) interest rates range from approximately 9.75% to 14.75%.

An encouraging trend: according to SBA loan program performance data, more than half of all SBA 7(a) loans approved in early 2025 were for amounts under $150,000, suggesting these loans are increasingly accessible to smaller and newer businesses.

Business Lines of Credit

A business line of credit gives you revolving access to capital that you draw from as needed. Some online lenders offer lines of credit to businesses with as little as six months of operating history. This can be a smart first move for startups because it provides a financial safety net without requiring you to borrow a fixed amount upfront. You only pay interest on what you use, and the funds replenish as you pay them back.

Business Credit Cards

Business credit cards are one of the most accessible forms of startup funding. Many do not require business revenue or operating history since approval is based largely on your personal credit. Cards with 0% introductory APR periods can effectively provide interest-free short-term financing for the first 12 to 18 months. Beyond the funding itself, using a business credit card responsibly builds your business credit history, which opens doors to larger financing down the road.

Revenue-Based Financing

Once your startup begins generating revenue, even if you are only a few months in, revenue-based financing becomes an option. Instead of evaluating your credit score or years in business, RBF providers focus on your monthly revenue to determine how much you can borrow and what your repayment looks like. Payments flex with your sales, so if you have a slow month, you pay less. This makes RBF particularly well suited for startups with growing but unpredictable revenue. Fundwell's revenue-based financing works exactly this way, and we regularly fund businesses that are less than a year old.

Equipment Financing

If your startup needs specific equipment to operate, equipment financing uses the equipment itself as collateral. Because the lender can repossess the asset if you default, these loans are easier to qualify for and often available to newer businesses. You can typically finance 80% to 100% of the equipment cost, with terms that match the useful life of the asset. This is a practical option for startups in industries like construction, manufacturing, food service, and healthcare where equipment costs are a major barrier to getting started.

Microloans from Nonprofit Lenders

Beyond the SBA program, numerous nonprofit organizations and community development financial institutions (CDFIs) provide microloans to startups. These lenders are mission-driven and often focus on underserved communities, women-owned businesses, veteran-owned businesses, and minority entrepreneurs. Qualification requirements tend to be more flexible than traditional lenders, and many offer business coaching alongside the funding.

Personal Loans

When your business is too new to qualify for any business financing, a personal loan is sometimes the bridge that gets you started. Personal loans are based entirely on your personal credit and income, with no business requirements. The risk is significant, since you are personally liable for repayment regardless of how the business performs. This approach works best for small initial amounts when you have strong personal credit and a clear plan for transitioning to business financing as the company grows.

Startup Funding Options That Do Not Require Repayment

Not all startup funding comes in the form of a loan. These alternatives provide capital without creating debt, though each comes with its own tradeoffs.

Small Business Grants

Federal and state governments, private foundations, and corporations offer grants to small businesses. The USA.gov notes that while there are no federal grants specifically for starting a business, several targeted programs exist, though most are targeted at specific industries like research, technology, or exporting. Private grants often focus on underrepresented founders, including women, minorities, and veterans. The upside is obvious: free money with no repayment. The downside is intense competition and a lengthy application process with no guarantee of success.

Crowdfunding

Platforms like Kickstarter, Indiegogo, and GoFundMe let you raise capital from your future customers and supporters. Crowdfunding works best for consumer-facing businesses with a product people can get excited about. It doubles as market validation, since a successful campaign proves demand before you invest heavily in production. The tradeoff is the effort required to create and promote a compelling campaign, plus platform fees that typically run 5% to 10% of the amount raised.

Friends and Family

Many startups get their initial funding from personal networks. If you go this route, treat it like a professional transaction. Put the terms in writing, clarify whether the money is a loan or an equity investment, and set clear expectations about repayment or returns. The personal relationships at stake make clear documentation more important, not less.

{{cta-light}}

What Lenders Look For in a Startup Loan Application

Even with limited business history, there are concrete steps you can take to strengthen your application and improve your chances of getting funded.

Personal Credit Score

When your business is new, your personal credit score carries most of the weight. Traditional banks and SBA lenders generally want to see scores of 680 or higher. Online lenders may work with scores as low as 550 to 600. Before applying, check your credit and address any errors or outstanding issues that could be dragging your score down.

Business Plan

A strong business plan is not optional for startup financing. Lenders need to see that you understand your market, have realistic financial projections, and have a clear strategy for generating revenue and repaying the loan. Your plan does not need to be 50 pages long, but it should clearly cover your business model, target market, competitive landscape, revenue projections, and how you plan to use the funds.

Industry Experience

Lenders want to know that the person behind the business has relevant experience. If you are opening a restaurant, having 10 years of restaurant management experience matters. Your track record in the industry signals to lenders that you understand the operational realities and are not going in blind.

Collateral or Personal Guarantee

Because startups lack business assets and operating history, many lenders require either collateral (personal real estate, equipment, savings) or a personal guarantee. This means you are putting personal assets on the line, which increases the lender's confidence but also increases your risk. Some loan options require no collateral, particularly online lenders and revenue-based financing, though they may charge higher rates to compensate.

Financial Documentation

Even without years of business financials, you can prepare documentation that demonstrates readiness. Most lenders will want to see:

• Personal tax returns (two to three years)
• Personal bank statements (three to six months)
• Business bank statements if available
• Projected profit and loss statement
• Cash flow projections
• Business registration documents and EIN

How to Improve Your Chances of Getting Approved

Getting a loan as a startup requires more preparation than an established business. These steps can meaningfully improve your odds.

• Start building business credit immediately. Open a business bank account, get a business credit card, and pay everything on time. Even a few months of positive credit history makes a difference.
• Separate your personal and business finances. This is one of the first things lenders look for. A dedicated business bank account shows you are running a legitimate operation.
• Start small and build up. Your first business loan does not need to be $500,000. A smaller loan that you repay successfully creates a track record that makes the next, larger loan easier to get.
• Apply to the right lenders. Do not waste time applying at a traditional bank if you have six months of history and a 620 credit score. Target online lenders, SBA microloans, and alternative financing options where your profile actually fits.
• Get your financials in order before you apply. Clean, organized financial documents signal competence. Messy or incomplete paperwork signals risk, even if the underlying business is solid.
• Consider a co-signer. If your personal credit or financial profile is borderline, a co-signer with strong credit can help you qualify for better terms.

Common Mistakes to Avoid When Seeking Startup Funding

New business owners often make avoidable errors that cost them time, money, or both.

• Borrowing too much too soon. It is tempting to take every dollar offered, but excess debt in the early stages can cripple a business before it has a chance to grow. Borrow what you need, not what you can get.
• Ignoring the total cost of borrowing. A fast approval with a high factor rate can end up costing significantly more than waiting a few weeks for a lower-rate option. Always calculate the total repayment amount before signing. Our guide on business loan rates by credit score can help you benchmark what you should expect to pay.
• Mixing personal and business finances. This makes accounting harder, complicates tax filings, and signals to lenders that you are not running a professional operation.
• Not having a repayment plan. Before borrowing, map out exactly how your business will generate the revenue to make payments. If the math does not work on paper, it will not work in practice.
• Falling for predatory lenders. Some lenders target desperate startup owners with extremely high rates and unfavorable terms. If the deal sounds too good or the pressure to sign is too high, walk away. The SCORE, a nonprofit partner of the SBA, offers free mentorship and resources to help new business owners evaluate loan options and avoid predatory terms.

{{cta-dark}}

Get Your Startup Funded

Startup business loans do exist, but finding the right one requires knowing where to look and being prepared when you apply. The funding landscape for new businesses is broader than most people realize, spanning SBA microloans, lines of credit, revenue-based financing, equipment loans, grants, and more.

The most important thing is to match the financing to where your business is right now. Do not force a fit with a product you are not ready for. Start with what you qualify for, use it wisely, repay it on time, and each successful step opens the door to larger and more favorable financing as your business grows.

Fundwell helps startup and early-stage business owners find the right funding option through a single, simple application. Whether you need a small business loan, a line of credit, or flexible revenue-based financing, we match you with the best fit for your situation. See what you qualify for today.

Frequently Asked Questions

Can I get a business loan with no revenue?

It is difficult but not impossible. SBA microloans, personal loans, business credit cards, and some nonprofit lenders will consider applicants without business revenue. Qualification typically depends on your personal credit score, business plan, and in some cases, collateral or a personal guarantee. Once your business begins generating even modest revenue, significantly more options open up.

What credit score do I need for a startup business loan?

Requirements vary by lender. SBA and traditional bank loans generally require personal credit scores of 680 or higher. Online lenders may accept scores as low as 550 to 600. Business credit cards can be accessible with scores in the 600 to 650 range. The stronger your personal credit, the more options you have and the better terms you can expect.

How much can a startup borrow?

Loan amounts range widely depending on the type of financing. SBA microloans provide up to $50,000. SBA 7(a) loans go up to $5 million, though most startup approvals are for much smaller amounts. Business credit cards may offer limits of $5,000 to $50,000. Revenue-based financing amounts depend on your monthly revenue. For most startups, initial funding in the $10,000 to $150,000 range is realistic.

How long does it take to get a startup business loan?

Online lenders and alternative financing providers can fund within one to five business days. SBA loans take four to eight weeks or longer. Business credit cards can be approved instantly or within a few days. The timeline depends on the lender, the complexity of your application, and how quickly you provide requested documentation.

Do I need a business plan to get a startup loan?

For SBA loans and traditional bank loans, yes, a business plan is typically required. For online lenders, business credit cards, and some alternative financing options, a formal business plan may not be required, but having one strengthens your application regardless of where you apply. It demonstrates that you have thought through the business opportunity and have a realistic plan for generating revenue and repaying the loan.

Every business has bills that need paying before the revenue rolls in. Payroll, rent, inventory, supplies, insurance. These day-to-day costs do not wait for your customers to pay their invoices or for your busy season to arrive. According to the Federal Reserve's Small Business Credit Survey, 56% of small businesses struggle to cover operating expenses, and 51% deal with uneven cash flow. Working capital loans exist to solve exactly this problem.

Whether you are bridging a seasonal gap, stocking up on inventory before a big quarter, or simply keeping the lights on while waiting for receivables to clear, working capital financing gives you the breathing room to run your business without interruption. At Fundwell, working capital solutions are one of the most common reasons business owners come to us, and we have seen how the right funding at the right time can make or break a growing company. This guide covers what working capital loans are, how they work, the different types available, and how to get one.

What Is Working Capital

Before diving into loans, it helps to understand what working capital actually means. In simple terms, working capital is the money your business has available to cover its short-term obligations. It is the difference between what you own right now (current assets) and what you owe right now (current liabilities).

How to Calculate Working Capital

The Export-Import Bank and other federal agencies even use working capital as a key metric when evaluating business health. The formula is straightforward.

Working Capital = Current Assets - Current Liabilities

Current assets include cash, accounts receivable, inventory, and any other assets you can convert to cash within a year. Current liabilities include accounts payable, short-term debt, payroll obligations, and taxes due within the same period.

For example, if your business has $200,000 in current assets and $150,000 in current liabilities, your working capital is $50,000. That means you have $50,000 of cushion to cover daily operations after meeting all your short-term obligations.

What Is a Good Working Capital Ratio

You can also measure working capital as a ratio by dividing current assets by current liabilities. Using the same example above, $200,000 divided by $150,000 gives you a working capital ratio of 1.33.

Most financial experts consider a ratio between 1.2 and 2.0 to be healthy. A ratio below 1.0 means your liabilities exceed your assets, which signals potential trouble meeting short-term obligations. A ratio significantly above 2.0 could mean you are sitting on too much idle cash or inventory that could be deployed more effectively. The ideal range depends on your industry, but for most small businesses, landing between 1.2 and 2.0 indicates you are in a solid financial position.

Why Working Capital Matters for Your Business

Positive working capital means you can pay employees, suppliers, and other obligations on time without scrambling for cash. It also gives you the flexibility to take advantage of opportunities as they come up, like a bulk discount from a supplier or an unexpected large order. Negative or thin working capital, on the other hand, forces you into reactive mode. You end up making decisions based on what you can afford this week rather than what is best for the business long term.

What Is a Working Capital Loan

A working capital loan is a form of short-term business financing designed specifically to cover everyday operating expenses rather than long-term investments like equipment or real estate. Think of it as fuel for your daily operations. It keeps the engine running when there is a gap between money going out and money coming in.

How Working Capital Loans Work

Working capital loans typically provide a lump sum or a revolving credit line that you repay over a short period, usually six to 24 months. Depending on the lender, repayments may be made monthly, weekly, or even daily. The amount you can borrow depends on your revenue, creditworthiness, and the type of financing you choose. Unlike loans for specific assets like equipment or real estate, working capital loans generally do not require you to specify exactly how the funds will be used. This flexibility is one of their biggest advantages.

What You Can Use Working Capital Loans For

Working capital financing can cover virtually any short-term business expense. Common uses include:

• Covering payroll during slow periods
• Purchasing inventory ahead of peak season
• Paying rent, utilities, and insurance premiums
• Funding marketing campaigns or short-term projects
• Bridging the gap while waiting for customer payments
• Taking advantage of vendor discounts for early or bulk payment

Pros and Cons of Working Capital Loans

Working capital loans solve a real problem, but they are not the right fit for every situation. Here is how the benefits and drawbacks stack up.

‍

Types of Working Capital Financing

Working capital is not a single product. It is a category of financing with several options, each suited to different situations. Understanding the differences helps you choose the most cost-effective path.

Business Lines of Credit

A business line of credit is one of the most flexible working capital tools available. You get approved for a maximum amount and draw funds as needed, paying interest only on what you use. Once you repay, those funds become available again. Lines of credit are ideal for businesses with recurring but unpredictable cash flow needs, like covering payroll during a slow month or bridging the gap between invoicing and payment. For a deeper comparison, see our guide on business line of credit vs term loan differences.

Short-Term Loans

A short-term business loan gives you a lump sum upfront with a fixed repayment schedule, typically over three to 18 months. These are a good fit when you know exactly how much you need and can predict when your revenue will cover the repayment. Short-term loans from online lenders can fund in as little as one to two business days, making them a practical option when speed matters.

SBA Working Capital Loans

The SBA 7(a) Working Capital Pilot program allows small businesses to borrow against their accounts receivable and inventory through an SBA-backed revolving line of credit. SBA working capital loans offer lower interest rates than most alternatives, but the application process takes longer and requires more documentation. If you have the time and meet the qualification criteria, SBA loans can be one of the most affordable working capital options available.

Revenue-Based Financing

Revenue-based financing is an increasingly popular working capital solution, especially for businesses with variable income. Instead of fixed monthly payments, you repay a percentage of your monthly revenue. When sales are strong, you pay more. When things slow down, your payments drop automatically. This built-in flexibility makes RBF well suited for seasonal businesses, e-commerce companies, and any business where revenue fluctuates month to month. At Fundwell, revenue-based financing is one of our most requested products because it aligns repayment with what a business can actually afford at any given time.

Invoice Financing

If your business invoices other companies and waits 30, 60, or 90 days for payment, invoice financing lets you unlock that trapped cash. A lender advances you 80% to 90% of the invoice value upfront, and you receive the balance (minus fees) when your customer pays. This is not technically a loan. It is an advance on money you have already earned, which makes it one of the least risky forms of working capital financing for B2B businesses.

Merchant Cash Advances

A merchant cash advance (MCA) provides a lump sum in exchange for a percentage of your future credit card sales. While MCAs offer fast access to capital, they are one of the most expensive forms of financing available. Effective APRs can range from 40% to over 350%. For most business owners, other working capital options like a line of credit or revenue-based financing provide similar speed with far more favorable terms. We covered MCAs in depth in our guide to merchant cash advances if you want to understand the full picture before considering this route.

Here is how these working capital options compare at a glance:

‍

How to Qualify for a Working Capital Loan

Qualification requirements for working capital financing are generally more flexible than those for long-term business loans. Here is what most lenders look for.

Credit Score Requirements

Traditional banks and SBA lenders typically require personal credit scores of 680 or higher. Online lenders are more flexible, with many accepting scores as low as 550 to 600. Some forms of working capital financing, like invoice financing and revenue-based financing, place less emphasis on your credit score and focus more on your business's revenue and financial health. Fundwell evaluates your full financial picture rather than relying on a single credit score, which helps business owners who may not fit neatly into a traditional bank's criteria.

Time in Business and Revenue

Most lenders want to see at least six months to one year of operating history and minimum annual revenue between $50,000 and $100,000. SBA lenders may have higher thresholds. The key metric lenders care about is whether your business generates enough consistent revenue to cover loan payments alongside your existing expenses. Having three to six months of bank statements that show steady deposits goes a long way toward demonstrating this.

Documentation You Will Need

The documentation required depends on the lender and loan type. Traditional banks and SBA lenders will ask for more, while online lenders keep it streamlined. At minimum, expect to provide:

• Three to six months of business bank statements
• Business tax returns (one to two years for banks and SBA)
• Profit and loss statement
• Balance sheet
• Proof of business ownership and a valid ID

With Fundwell, the process starts with a simple application and a few months of bank statements. From there, we match you with the right product and walk you through anything else needed for your specific financing type.

{{cta-light}}

Working Capital Loan Rates and Costs

Cost is one of the most important factors when choosing working capital financing. The cheapest option on paper is not always the best value when you factor in speed, flexibility, and total repayment.

Interest Rates by Lender Type

Working capital loan rates vary widely depending on where you borrow. According to the Federal Reserve Bank of Kansas City, traditional bank rates for short-term business loans range from approximately 6% to 12% APR. SBA working capital loans fall between 9.75% and 14.75% based on the current prime rate. Online lenders charge anywhere from 8% to over 80% APR, with most creditworthy borrowers landing in the 10% to 30% range. Revenue-based financing is quoted as a factor rate, typically between 1.1 and 1.5, which means you repay 10% to 50% more than the amount advanced.

Common Fees

Beyond the interest rate or factor rate, watch for fees that can increase your total cost of borrowing. These commonly include:

• Origination fees of 1% to 6% of the loan amount
• Draw fees on lines of credit, charged each time you access funds
• Maintenance fees or annual fees for keeping a credit line open
• Prepayment penalties that charge you for paying off the balance early
• Late payment fees that add up quickly on daily or weekly repayment schedules

Always ask for a full fee breakdown before signing. A loan with a low interest rate and high origination fees can end up costing more than a slightly higher rate with no fees.

How to Compare the True Cost

The most reliable way to compare working capital options is to look at the total cost of capital, which is the total amount you will repay minus the amount you borrowed. For products quoted with an APR, this is relatively straightforward. For factor-rate products like revenue-based financing or merchant cash advances, multiply the advance amount by the factor rate. A $100,000 advance with a 1.25 factor rate means $125,000 in total repayment, or $25,000 in cost. Comparing total cost of capital across your options gives you a clear, apples-to-apples picture regardless of how different lenders quote their pricing.

How to Choose the Right Working Capital Solution

With several options available, picking the right one comes down to matching the financing structure to your specific business needs.

Match the Financing to Your Cash Flow Pattern

If your cash flow is relatively steady, a short-term loan with fixed payments may be the simplest and most affordable option. If your revenue swings significantly from month to month, revenue-based financing or a line of credit provides more flexibility. If you are waiting on large invoices from B2B clients, invoice financing targets the exact problem without adding traditional debt to your balance sheet.

When a Line of Credit Makes More Sense Than a Loan

If you are not sure exactly how much you need or when you will need it, a line of credit gives you ongoing access to capital without committing to a fixed repayment schedule. You only pay for what you use, and the funds replenish as you pay them back. For businesses that experience periodic cash crunches rather than a single shortfall, a line of credit is usually more cost-effective than taking out multiple short-term loans.

When to Consider Revenue-Based Financing

Revenue-based financing makes the most sense when your business has strong monthly revenue but unpredictable timing. Seasonal businesses, e-commerce companies, and service businesses with project-based income all benefit from repayments that flex with their sales. It is also a strong option for business owners whose credit score does not reflect their actual ability to repay, since RBF providers focus primarily on revenue performance. Fundwell's revenue-based financing is built around this exact principle, matching your repayment to what your business actually earns each month.

When a Working Capital Loan May Not Be the Right Fit

Working capital loans are designed for short-term needs, and using them for the wrong purpose can create more problems than they solve.

If you need funding for a long-term investment, like purchasing real estate, major equipment, or making an acquisition, a term loan or SBA loan with a longer repayment period will typically be more affordable and better structured for that purpose. Using short-term working capital financing for long-term expenses means higher costs and a repayment timeline that does not match the return on your investment.

Similarly, if your business is consistently unable to cover operating expenses regardless of timing, a working capital loan may provide temporary relief but will not fix the underlying issue. In that case, reviewing your pricing, costs, and business model is a more sustainable path forward than layering on additional debt.

{{cta-dark}}

Keep Your Business Moving with the Right Funding

Cash flow gaps are a normal part of running a business. What matters is how you manage them. Working capital loans give you the flexibility to keep operations running, pay your team on time, stock inventory when you need to, and take advantage of opportunities without waiting for receivables to clear.

The key is choosing the right type of working capital financing for your situation. Whether that is a line of credit for ongoing flexibility, revenue-based financing that adjusts to your sales, or a short-term loan for a specific need, the right solution keeps your business moving forward without unnecessary cost or risk.

Fundwell offers multiple working capital options through a single, fast application. See what you qualify for today and get the funding your business needs to keep growing.

Frequently Asked Questions

How fast can you get a working capital loan?

It depends on the lender. Online lenders and alternative financing platforms like Fundwell can often approve applications within hours and fund within one to three business days. Traditional banks may take one to four weeks, and SBA loans can take four to eight weeks or longer due to the additional documentation and government guarantee process.

Do working capital loans require collateral?

Most working capital loans do not require specific collateral like real estate or equipment. However, many lenders require a personal guarantee, which means you are personally responsible for repaying the loan if the business cannot. SBA working capital loans may use a blanket lien on business assets. Unsecured options are available, particularly through online lenders, though they typically come with higher interest rates.

Can startups get working capital loans?

Some lenders work with businesses that have as little as six months of operating history. Online lenders and revenue-based financing providers tend to be more flexible with newer businesses, provided you can show consistent monthly revenue. SBA microloans are another option for startups. Traditional banks generally require at least two years of operating history for working capital products.

What is the difference between a working capital loan and a term loan?

A working capital loan is typically a short-term product (six to 24 months) designed to cover everyday operating expenses. A term loan is longer-term financing (one to ten years) intended for larger investments like equipment, real estate, or business expansion. Working capital loans usually have faster funding and more flexible qualification requirements, while term loans offer lower rates and larger amounts.

How much working capital does a small business need?

A common rule of thumb is to maintain enough working capital to cover three to six months of operating expenses. However, the right amount depends on your industry, business model, and cash flow patterns. Seasonal businesses may need more working capital heading into their slow season, while businesses with steady recurring revenue may need less. Calculating your working capital ratio (current assets divided by current liabilities) and targeting a ratio between 1.2 and 2.0 is a practical way to gauge whether you have enough.