Female customer paying business owner at the cash registry, to illustrate the idea of "working capital"
Betsy Wise
By: betsy_wise
Read in 26 minutes

Working Capital Loan: A Complete Guide

A working capital loan can help you if you experience financial instability. With access to funds, it’ll be simple to ensure everything runs smoothly in your business.

With this post, you’ll be able to decide whether to get this type of loan to put your business on a more solid financial foundation.

You’ll learn how to get them, the requirements, and more. We also deep-dive into the important topic of working capital, what it is and how to calculate it.

This article can help you confidently move your business forward.

Table of Contents
1. Best working capital loans
2. What is a business loan for working capital? 
3. Types of working capital loans
4. Uses of working capital loans
5. Pros and cons of loans for working capital
6. Should I get a working capital Loan? When it is a good idea
7. Working capital loans for small businesses: Average interest and fees
8. Working capital loan requirements
9. Tips for comparing working capital loans
10. How to get a working capital loan
11. How does working capital work in the real world
12. What is working capital?
13. How to calculate working capital: Working capital ratio formula
14. How can a company increase its working capital?
15. FAQs

Best Working Capital Loans

Camino Financial

Camino Financial supports small business owners. We know what it feels like to go up against other competitors and manage capital, so a business thrives.

Our microloan amounts range from $5,100 to $35,000, with fixed interest rates and monthly payments, and you can use the funds for working capital reasons.

We build the pre-qualification into the loans, so your credit score is not affected. And the best thing is that we don’t require collateral as part of the loan process.


Apply for a business loan today


The SBA CAPLines program offers four types of working capital lines of credit:

Seasonal Line

It’s perfect for businesses with periodic sales activity fluctuations due to seasonal demand changes. The maximum line amount is $5 million, and the maximum term is 36 months.

Contract Line

Provides financing to businesses that have been awarded government contracts or other long-term contracts in order to help them meet the performance requirements of those contracts. The maximum line amount is $5 million, and the maximum term is 60 months.

Builders Line

Provides financing to small builders and contractors for inventory and other costs associated with new construction projects. The maximum line amount is $5 million, and the maximum term is 36 months.

Working Capital Line

They finance small businesses for their ongoing working capital needs. The maximum line amount is $5 million, and the maximum term is 60 months.


Credibly also offers a line of credit, which you can use for business expenses like inventory or equipment purchases.

The loans are repaid through a percentage of daily credit card sales, which makes repayment easy and flexible for businesses.

Businesses must have been in operation for at least six months and have a minimum monthly credit card sales volume of $5,000 to qualify for a loan from Credibly. There are no restrictions on how businesses can use the loan funds, so they can be used for any business purpose.


Lendio makes it easy for small businesses to find the right loan by matching them with the best lender for their needs.

Lendio offers a variety of loans, including working capital loans, equipment loans, lines of credit, and SBA loans.

  • Businesses must have been in operation for at least six months and have a minimum monthly revenue of $5,000 to qualify for a working capital loan through Lendio.
  • Lendio also requires that businesses have a personal credit score of 550 or higher and a business credit score of 650 or higher.
  • Repayment terms for working capital loans through Lendio range from three to 36 months.

Fora Financial

Fora Financial working capital solutions give you the flexibility and funding you need to reach your goals.

They offer a variety of financing options, including short-term loans, lines of credit, and merchant cash advances. They also have a wide range of repayment terms to fit your needs.

All the financial products are designed for businesses that have been in operation for at least six months and have a minimum monthly revenue of $10,000.

Businesses must have a good credit history and a strong financial track record to qualify for Fora Financial Working Capital.

They must also be able to demonstrate a need for the funds and how they will be used to grow the business.


Fundbox offers working capital loans to small businesses in the United States. Businesses must have been in operation for at least six months and have a minimum annual revenue of $50,000 to be eligible for a loan. Loan amounts range from $1,000 to $100,000, and repayment terms range from 12 to 24 weeks.

Fundbox charges a flat fee for its loans, which is typically between 10% and 15% of the loan amount. There are no prepayment penalties or hidden fees.

To qualify for a loan, your business must:

  • Be in business for at least 3 months
  • Have a gross revenue of at least $50,000 per year
  • Have an active bank account
  • Use invoicing software such as QuickBooks or Freshbooks (or have manual invoices that you can upload)

What Is A Business Loan For Working Capital?

All business owners need cash to cover short-term operational expenses. But there may be periods when they don’t have enough money on hand and don’t know where to turn for help.

A business may also experience economic downturns with a resulting plummet in revenue.

You can use a loan to cover all these expenses and strengthen your cash flow.

A loan for working capital can help any business continue to work and make financial progress.

Types Of Working Capital Loans

Maybe you’re already thinking, “How do I implement working capital to achieve financial success?”

The way you streamline your day-in and day-out operation help provide a cushion of available funds.

Here are five sources of capital that safeguard your cash flow so there’s money left over for growth.

Small Business Loans

Small business loans are very versatile forms of financing. You can use them to buy machinery, pay previous debts, or even improve your working capital.

You can find a type of loan that fits your business very easily, as many lenders work daily with small businesses.

Small business loans for working capital are the best way to improve your cash flow.

Unsecured working capital loans are a type of loan that is not backed by any form of collateral. This means that if the borrower fails to repay the loan, the lender cannot seize any assets of the borrower in order to recoup their losses.

Apply for a business loan today

Lines of Credit

With a line of credit, you have an available credit limit that you can access anytime, and you can advance cash as needed.

The lender needs revenue data to ascertain performance and set a credit limit for working capital. In most cases, you can transfer funds into your account using a checking account or even a secure mobile app, and your business must keep a minimum annual revenue.

You need to have a business checking or savings account to apply for a working capital line of credit.

Before the bank approves the business line of credit, they need to review your business’s balance sheet to verify your assets and liabilities.

They may request other documents to determine your creditworthiness.

Once approved, you can make withdrawals as needed. The bank continues to make cash advances as long as you make regular payments to repay the loan.


It’s a common practice for small business owners to make personal contributions to their businesses.

The owners can make contributions and be paid back when there’s a net gain in retained earnings. Furthermore, other family members and third-party investors may also agree to contribute money to build up your business’s equity.

Business Credit Cards

For convenience, financial institutions design credit cards specifically for small business usage.

Your available credit limit will depend on your credit scores and current financial statements.

Many business credit cards offer business rewards like airline bonuses, no annual fees, and cashback on select business purchases.

Interest rates may be at a fixed lower percentage rate for a specified time and variable rates thereafter.

However, business credit cards come with a drawback: be aware that rolling over more than 30% of your monthly credit limit will hurt your credit.

Trade Creditors

This provides some wiggle room in your budget when your accounts payable aren’t due until 60 days out. The lender restricts credit terms based on a business’s creditworthiness.

You can delay payments for goods and services by working with trade creditors. You’re able to manage short-term cash flow without using personal funds to actualize growth.

The flexible arrangement allows you to work out credit terms tailored to your business needs.

Even though you can always pay off debt sooner, having additional time for payables is advantageous. For instance, your business may have a slower month, or unforeseen operating expenses could crop up.


New businesses sell their accounts receivable to third-party factoring companies. This way, you receive cash immediately as the third-party companies purchase your accounts for cash at an agreed rate.

Invoice Factoring And Invoice Financing

Invoice factoring happens when a third-party factoring company purchases your accounts receivable.

They do so at a discounted fee (usually 70% to 98% of the face value of the invoices).

So rather than wait 30 to 60 days to get paid by customers, you receive a cash payment instantly.

Invoice financing is very similar, but the key difference is that you don’t sell your invoices. Instead, they work as collateral.

To qualify for this type of loan for working capital, your customers must have good credit. Once customers pay in full, you receive the remaining payment percentage less factoring fees.

Online Term Loans

Online lenders make funding easy, so you don’t experience any downtime in your finances. Unlike traditional bank loans, online term loans are more convenient as you apply from the comfort of your home or office; the process is much shorter and comes with extra perks.

Lenders such as the Small Business Administration can support difficult times such as the Paycheck Protection Program.

Short-Term Loan For Working Capital

Short-term financing is precisely what they sound like: business loans you repay over a short period. Online lenders are the perfect source of short-term working capital loans.

Borrowers aren’t required to limit loan proceeds only to working capital. They can choose to make asset purchases or expand their business.

At Camino Financial, we match applicants with a small business loan with their needs. Our minimum requirements, flexible criteria, and fast funding make us an attractive alternative.

Small Business Administration Loans

These are loans guaranteed by the Small Business Administration. Hence they are usually more affordable than other types of loans.

You can get an SBA loan through traditional banks and credit unions. Plus, you can get small and large loan amounts.

However, the loan process is typically slow, and borrowers with low credit may not qualify. In addition, some SBA loans require a downpayment and collateral.

Merchant Cash Advances (MCAs)

Merchant cash advances are fast cash options where the lender pays a lump sum to the borrower. Then, you repay it with a percentage of future credit card sales.

Merchant cash advance providers charge higher payback fees which eat away at a business’s profit margin.

Money From Friends And Family

Small business owners turn to friends and family members as one of the primary ways to raise capital.

These loans should be in writing and treated like any other debt obligation.

P2P Loans

You can get peer-to-peer online loans through investors instead of traditional banks or credit unions. Because there are fewer overhead costs, borrowers may pay lower rates.

Home Equity Line Of Credit

A HELOC allows homeowners to use their home’s equity to qualify for a line of credit. Borrowers can make withdrawals up to their approved credit limit.

Business credit cards can also be a way to strengthen the working capital of your small business. The difference with the other products listed here is that you don’t receive a lump sum.

Uses of Working Capital Loans

Entrepreneurs use working capital funds to improve cash flow when actively building revenue streams.

As you wait to close your working capital loan, you can plan the best way to use the money.

With adequate finances in their bank account, they can reach their goals quicker and sustain their business through lean times.

For example, a restaurant owner enlarges and makes the dining area more inviting to bring in more customers, or a manufacturer buys the latest equipment to stay competitive in their industry.

Many business owners invest in research to add a new product line or service or hire a marketing professional to improve existing products and services sales.

You could even designate part of the proceeds to an emergency fund to cover unexpected expenses.

What’s important when using working capital loan income is to make strategic purchases to enhance long-term growth.

That could mean purchasing real estate, supplies, and materials or launching a new business to get the best return on your investment.

Pros And Cons Of Loans For Working Capital

A term loan for working capital is not for everyone. This section will help you get a clearer picture of how this small business loan works.


  • Working capital loans for small businesses are synonymous with instant access to cash.
  • An unsecured loan for working capital means the lender doesn’t require collateral.
  • Lenders usually have minimal restrictions on how you use working capital proceeds.
  • When managed correctly, proceeds help a business owner overcome a financial slump.


  • Interest rates usually are high, which increases the monthly payment amount.
  • Borrowers defaulting on the loan can ruin their personal and business credit scores.
  • Some lenders require a minimum credit score or a personal guarantee.
  • Getting a loan is an additional monthly expense your business may not be ready to assume.

Should I Get A Working Capital Loan? When It Is a Good Idea

If your company is frequently short on cash, a working capital loan could be exactly what you need.

Working capital loans are a good fit for small businesses that:

  • need to strengthen their cash flow
  • have a good balance between assets and liabilities
  • don’t have money management problems
  • need cash to balance growth spurts and sales fluctuations
  • need financial help with short-term business expenses

They are not good fits with small businesses that:

  • are looking to make long-term investments
  • want to pay for significant business opportunities
  • want to purchase real estate

Working capital business loans can help you eliminate financial stress. But you should also ensure you have enough money to repay the loan.

A good way of deciding if a loan is right for you is by using a business loan calculator.

This tool can help you understand how much you’ll have to pay each month. That way, you can choose the amount that best works for you.

Term Loan Calculator

Working Capital Loans For Small Businesses: Average Interest And Fees

Lenders offer working capital loans with APRs ranging from 6.99% to 80%.

Some charge an origination fee that averages 1.5% of the loan amount, while others do not.

Because each applicant’s situation is different, the terms you get will vary.

The APR includes the interest rate, origination fee, and other closing costs.

Lenders charge an APR equal to their perceived risk. Therefore, applicants with the best financial history receive the best APR and repayment terms.

Working Capital Loan Requirements

In addition to following the outlined steps on how to get a working capital loan, here are more valuable suggestions.

  • Pay down debt before applying. You want your financial records to be in the best shape possible before applying for a loan. That means your financial records indicate that you pay your bills on time and make regular payments to pay off short and long-term debt.
  • Don’t apply for a loan unless you have the means to repay it. Lenders look at your debt-to-income ratio to determine your ability to make future loan payments.

Be aware of common lender requirements such as these:

  • Minimum credit score: A loan approval requirement could be on the low side of 550 or in the higher range between 725 and 800 for personal credit or a business credit score between 49 and 100.
  • Annual Revenue: Requirements can range from $2,500 to $10,000 or more.
  • The number of years in business: Most lenders require that you’ve been in business for at least 1 to 2 years.
  • Fees: Depending on the loan type and lender, you could pay origination, late payment, documentation, processing, and other fees. Some lenders charge a prepayment penalty if you pay a loan off early. On the other hand, some lenders offer early payoff discounts.
  • Repayment terms: Short-term repayment terms increase the monthly payment but reduce the overall interest you repay. Longer payment terms do the opposite. Lenders may require daily, weekly, bi-monthly, or monthly payments.

Working capital financing options are available. Below, find the steps to choose the right for your business.

Tips for Comparing Working Capital Loans

Here are a few tips to help you make the best decision for your business:

Know Your Needs

Before comparing loans, knowing how much money you need and what you’ll use it for is important.

This will help you determine which loan features are most important and compare offers more effectively.

Compare Loan Terms

Loan terms can vary significantly from lender to lender, so it’s important to compare them.

Pay attention to things like loan amounts, repayment terms, interest rates, and fees.

Consider Your Collateral

Some lenders will require collateral for a working capital loan, while others will not.

If you have collateral to offer, it may make sense to choose a lender that requires it, as they may offer better terms.

Compare Total Cost of the Loan

When comparing loans, be sure to compare the total cost of the loan, not just the business interest rate. This includes origination fees, prepayment penalties, and other charges that can add up.

Read the Fine Print

Before you sign on the dotted line, be sure to read the fine print carefully.

Pay attention to repayment terms, grace periods, and hidden fees. By understanding the loan agreement, you can avoid any unpleasant surprises.

How To Get A Working Capital Loan

Know what loan amount you can afford

Having money to spend helps you run your small business efficiently.

If you don’t know how much to borrow, choose an amount with comfortable repayment terms.

Start by getting a working capital loan for a smaller amount and making timely payments. Then you’ll be able to qualify for a future more considerable loan amount with better terms.

Choose a working capital loan company

List banks, financial institutions, and online lenders. Then, compare their requirements, such as:

  • APR
  • minimum credit score
  • monthly revenue
  • number of years in business

Pay attention to TrustPilot scores and other types of ratings. These indicate how pleased customers are with each lender’s service.

The working capital lending company you choose should have a customer service team you can contact if you have questions before, during, and after the loan process.

Then, select a lender that matches your business needs.

At Camino Financial, we have minimal requirements, and we’re known for our top-notch customer service.

Prepare your documents

Lenders typically ask to see these documents:

  • bank statements
  • personal and business tax returns
  • business financial statements
  • copies of permits and licenses
  • SSN, ITIN, or EIN
  • proof of residence (utility bill)
  • list of collateral items you own (if it’s a secured loan)

We recommend you prepare these documents and information before applying for a working capital business loan.

Fill out an application

Both brick-and-mortar financials and online lenders allow applicants to apply for working capital funding online. You can also complete a paper application for the working capital loan.

Provide the requested information and submit your form.

A Camino Financial loan application won’t take you more than 10 minutes.

Get pre-qualified

Lenders may notify you instantly that you are pre-qualified for a loan, but some do not. Contact their customer service staff if you haven’t heard anything in a couple of days.

Complete the lending process

The lender might require some more information and documents to approve your loan.

They might also require you to connect your bank account to apps like Plaid to review your cash flow.

Get funded

Once approved, the lender will send the loan offer for you to sign and return. Then, you will have the loan proceeds deposited into your bank account.

With Camino Financial, you can receive your cash in 2 to 10 days!

What is Working Capital?

In simplest terms, working capital is how much liquidity your business has.

People can also consider how much money your business has to invest in continuing its growth

Also referred to as Net Working Capital (NWC), it’s a metric that can help you understand your business’s finances and maximize profits.

If you have bad working capital, your business might be in danger and you need to fix it ASAP. A financial institution can help you with that.

Putting your assets (e.g., inventory, accounts receivable) and liabilities (e.g., credit card debt) on paper is similar to getting a checkup with your physician.

At a glance, you can see how healthy your business is financially speaking. Then, it’s easier to adapt your working capital to accommodate seasonal upsurges during your business cycle.

Some people also use working capital loans to improve this metric.

Plus, you can determine in which areas you tend to overspend. You soon discover your business’s financial health continually changes, which is normal.

Learn more about the importance of working capital.

How Does Working Capital Work in the Real World

In the business world, “working capital” is a term used to describe a company’s money to pay for its day-to-day operations.

In other words, it’s the cash that a business has available to meet its short-term obligations.

Upfront payments

By receiving a deposit or full payment upfront, you keep your finances on an even keel as you complete projects for your customers.

Some business owners use this method with new clients since they haven’t established a credit relationship.

Moreover, these types of payments cover ongoing expenses.

If your business provides an immediate service or product to your clients (think of a retail store, for example), you probably require an upfront payment from your clients.

Payment in 30 days

Manufacturing companies and businesses in the labor-intensive construction industry normally set up a 30-day payment schedule with customers.

As you complete work throughout the month for different customers, payments come in each week throughout the 30-day period.

This boosts your cash flow and prevents you from borrowing money.


A consumer-focused industry like food and beverage keeps a close eye on the available cash.

Many of these industries work with suppliers to extend payment beyond 30 days during upswings and downswings and keep inventories as lean as possible.

Because the demand for products that consumers use regularly is high, it’s possible to double annual revenue by focusing on strategic cash management.

How to Calculate Working Capital: Working Capital Ratio Formula

With the Working Capital Ratio, small business owners can understand how their business is doing.

After all, it is well known that assets must exceed liabilities to realize a profit.

If the margin between the two is too close, your business suffers.

Here’s the formula for the Working Capital Ratio:

Working Capital Ratio = Current assets / Current liabilities

You can also refer to “Current debts” as “Current liabilities.”

For example:

Let’s say your small business has $100,000 in current assets and $60,000 in current liabilities. Then you just simply calculate:

  • Working Capital Ratio = $100,000 / $60,000
  • Working capital ratio = 1.6

In this example, your business ratio is 1.6. But is that good or bad?

What is a good ratio of working capital?

You can consider a good working capital ratio anything between 1.2 and 2.

By keeping tabs on this ratio, you can quickly assess whether you need to tweak your business plan or make other adjustments to cash flow.

How Can A Company Increase Its Working Capital?

Use these quick tips to give your cash flow an instant boost.

Trim the fat

This means looking closely at how you spend money and how to save money.

For example, can you reduce vehicle, office, advertising, and staff expenses? Perhaps you could shop insurance costs or negotiate better pricing with suppliers.

Lean management is a strategy all about producing more with less.

Create better operational habits

Slow paying customers affects your cash flow; checking their credit is good.

Likewise, don’t use working capital to purchase assets. Make a budget so you can track expenses.

Know your working capital ratio (current assets/current liability)

A rating of 1.5 to 2.0 means you are using your resources efficiently.

By staying on top of this ratio, you know how effectively you operate your business.

Make debt payment a priority

How well you’ve paid past debts helps lenders approve a loan for working capital.

By paying down debt on time, you establish a good credit history.

Streamline your products and services

If a product or service isn’t performing well, consider deleting and replacing them with ones that produce more revenue.

How to Improve Your Working Capital: 10 tips

If you’ve kept an eye on your working capital ratio and it’s below the recommended for your operational costs, you can still work things out to keep your business’ finances healthy.

Here are several ways to improve your working capital without business financing:

  1. Try to reduce the time it takes for you to receive payments
  2. Don’t offer a client payment facilities if he’s known for not paying on time
  3. Create penalties for late payments
  4. Keep an eye on past-due accounts
  5. Make sure there aren’t any unnecessary expenses in your business
  6. Work with suppliers that offer discounts and offers and negotiate payment terms
  7. Explore marketing to get more clients and increase your sales
  8. Don’t stockpile your inventory
  9. Make sure you use tax incentives when filing your taxes
  10. Find an external source of capital

Working Capital is Synonym with Success

Knowing you can control your cash flow to balance work and family obligations is a relief.

You want to have enough assets built up to use as available operating capital at a moment’s notice. Your goal is to have sufficient assets to cover any short-term debt and unexpected expenses.

To achieve that success, you can monitor your working capital ratio and take steps so your business stays in the black.

By taking a proactive stance relating to your business finances, you’re able to see a return on your investment as quickly as possible.

Whether you have available cash or use business financing options, consider setting up a rainy day fund to plan for future expansion.

This planning fund may cover items like adding on an additional building or renting a larger space.

You may want to upgrade your business software, purchase newer furniture, or invest in technology that gives you an edge over competitors.

As many business owners know, opportunities arise quickly.

Keeping a steady and reliable cash flow allows you to make financial decisions without worrying about whether there’s enough money in the till.

You’ll no longer need to sidestep the slow dance between having too much or insufficient working capital.

A Loan For Working Capital Can Change Your Business’s Future

Business capital helps small businesses get through slow periods when little or no revenue comes in.

This short-term financial solution provides a cash flow boost. Then you can use it to improve your business’s financial health.

You don’t need to stress out when a loan for working capital provides access to needed cash immediately.

When managed correctly, financing working capital creates long-term financial gains.

Apply for a business loan today


Are working capital loans a good idea?

It depends on your business and how you plan to use the working capital loan.

Typically, you can use a working capital loan to finance short-term needs such as inventory, accounts receivable, or short-term debt.

How do you qualify for a working capital loan?

You will need to demonstrate that your business has adequate revenue to repay the loan.

This means providing financial statements and other documentation to show that your business is bringing in enough money to cover the loan payments.

As with any loan, an applicant must meet the lender requirements to get a loan. These may include credit score, how long in business, monthly revenue, and available collateral

How do small businesses get working capital?

There are a number of ways small businesses can get working capital, but the most common methods are through business loans and lines of credit.

Both of these options provide companies with the funds they need to keep operations going, pay for inventory, and make other necessary purchases.

Why is working capital important for a new business?

Working capital is crucial for all businesses, but especially for startups. Businesses need money to pay for day-to-day expenses and cover unexpected costs.

That’s what working capital is for.

A new business that cannot finance all these needs will have a hard time having success and might end up closing.

How do you get working capital for small businesses?

The first thing you’ll need to do is find a lender. Once you do, complete the application form and submit any documents or information the lender might require.

If the lender approves your application, you’ll receive your loan in a few days.

What can working capital loans be used for?

Small business working capital loans help cover the day-to-day business expenses, for example, payroll, rent, previous debts, and purchasing inventory.

Can you get a loan for working capital?

Yes, it’s possible to get a loan to strengthen your working capital. Some examples are online loans, bank loans, and lines of credit.

What is a good interest rate on a working capital loan?

Depending on the type of working capital loan you apply for, you could pay 6% to 99%.

Applicants with the best credit histories and revenue receive lower rates and better repayment terms.

What is the formula to calculate working capital?

In simple terms, you itemize your assets and subtract from that total your current debts.

Working Capital = Current assets / Current debts

Is it possible to get a startup working capital loan?

Getting a working capital loan for a new business is possible, but it can be difficult. Most lenders want to see a track record of profitability and/or strong customer metrics before they will approve a loan for a new business.

There are a few lenders who are willing to work with startups, and there are also some government programs available that can help businesses secure financing.

It’s important to research and compare different lenders to find the best option for your business.

Can you get a loan for working capital?

Yes, you can use a line of credit, invoice financing, the SBA’s 7(a) Loan Program, or small business loans.

What are the benefits of working capital loans?

You can use the funds for anything you need, you don’t have to put up collateral, and they’re generally quick and easy to obtain.

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

A term loan has a fixed repayment schedule and a fixed interest rate.

On the other hand, a working capital loan is a short-term loan used to finance the day-to-day operations of a business.

How to get capital for a business?

There are many ways to raise capital for a business. Still, the most common methods are equity financing (issuing stock or selling ownership interests in the company), debt financing (issuing loans), and crowdfunding.

What is working capital used for?

You can use working capital for the day-to-day operations of a company. It allows a company to pay its employees, buy inventory, and cover other expenses. In short, working capital is the lifeblood of any business.

Where to find working capital?

You can look to traditional lenders like banks, or you could try more innovative financing options like peer-to-peer lending or crowdfunding.


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