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Is an SBA Working Capital loan right for your small business?

SBA Loan Overview

Many small business owners turn to Small Business Administration (SBA) loans to fund their ventures because they offer low-interest rates, favorable repayment terms, and no ballooning costs.

There are several types of SBA loans, the two most popular being traditional 7(a) loans and Working Capital loans. Traditional SBA 7(a) loans can fund up to $5 million and can be used for almost any business purpose. But for entrepreneurs who need capital to run the daily operations of their business, Working Capital loans are the answer.

What is a Working Capital loan?

SBA Working Capital loans are a great option for entrepreneurs who need funds to run an existing business. These loans fall under the category of SBA 7(a) loans and offer advantages specifically for small business owners looking for less than $150,000. Some of the highlights of Working Capital loans include:

  • Funding amounts from $25,000 — $150,000.
  • The funding process can be as short as 30 days for existing businesses.
  • Great for entrepreneurs who need additional capital for day-to-day expenses.

Is a Working Capital loan a good fit for you?

Working Capital loans are best for borrowers whose businesses are already up and running but need additional financing for daily operations. Funds from these loans are primarily used for working capital expenses such as rent, utilities, employee wages, and some equipment purchases and inventory. They can also work for individuals planning to open service-oriented or mobile businesses that don’t require real estate or the build-out of a brick-and-mortar store.

If you are opening a new business, it’s important to note you cannot use Working Capital loan funds to pay for a franchise fee; this must be paid before you’re approved.

How to Qualify for a Working Capital Loan

There are strict eligibility requirements when it comes to applying for an SBA Working Capital loan. You must have at least a 690 minimum FICO credit score and should not have had any bankruptcies within the last three years. These firm guidelines virtually guarantee that the borrower is able to pay back the loan, meaning the SBA is able to offer more preferable loan terms for Working Capital loans. For example, Working Capital loans only require a 10 percent down payment, compared to 20 — 30 percent for traditional SBA loans.

Combining SBA Loans with ROBS

Many individuals who successfully launched their business using 401(k) business financing later look to expand their thriving businesses by gaining additional funding with Working Capital loans. Rollovers as Business Startups allow entrepreneurs to use their retirement funds to start their business without taking a taxable distribution. This is a great way to launch a business without making loan payments prior to earning revenue. After the business is established, Working Capital loans are extremely valuable for growing operations by hiring additional staff or purchasing additional inventory.

Applying for a Loan

If you decide an SBA Working Capital loan is the best fit for your business, consider working with a company that can streamline the loan application process.

Guidant makes it easier for qualified borrowers to obtain an SBA loan because we have relationships with a wide network of lenders and understand their nuances. Rather than wasting time filling out multiple loan applications only to find you don’t fit that bank’s criteria, Guidant uses a single application and weeds out lenders that won’t work. We save you time by ensuring your loan application ends up in the hands of banks who are most likely to fund your project.

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