Female customer paying business owner at the cash registry, to illustrate the idea of "working capital"
Betsy Wise
By: betsy_wise
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How to Get Working Capital Loans For Small Business

It’s essential to know about the different working capital loans for small businesses available when planning for success.

We know that running a small business could be challenging, but keeping your head above water with funds is possible. Here you’ll find how!

Tables of Content
1. What are working capital loans for startups and small businesses?
2. Working capital ratio formula
3. How to apply for small business working capital loans
4. How to get working capital for small business
5. How to improve your working capital: 10 tips
6. What types of capital sources fund your working capital needs?
7. How does working capital work in the real world?
8. Working capital is synonym with success
9. Find the best small business working capital loans in Camino Financial
10. FAQs

What are Working Capital Loans for Startups and Small Businesses?

In the simplest of 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 the finances of your business 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

Get Approved For A Business Loan Today

Uses of Working Capital Loans

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

As you wait to close on 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 sales of existing products and services.

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

What’s important when using working capital loans 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.

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

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

This formula is very easy to use and will help you understand how much working capital you have.

There’s a way to identify if your assets and liabilities work together in harmony. A comparative number called a working capital ratio helps you make that determination.

a business owner seeking working capital loans for small business

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 in order 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

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 to Apply for Small Business Working Capital Loans

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.

How to Get Working Capital  Loans for Small Business

When considering obtaining a working capital loan, you should follow the steps to succeed.

  1. Know which loan options are available that you qualify for. That entails comparing lenders and their requirements and choosing the type of capital source that’s best for your business.
  2. Determine how much money you need to grow and sustain your business at its current level of operation.
  3. Identify your business’s weakest areas and invest all or a portion of the working capital loan funds toward those needs.
  4. Review your personal and business credit history to identify and rectify any errors. That means obtaining a credit report from the 3 major credit bureaus.
  5. Get your financial statements in order. If you don’t know how to interpret the information, get help from a professional accountant.
  6. Know how long you’ve been in business, your business’s ID number (an SSN, ITIN, or EIN), and other information.
  7. Get other documents on hand you will need, such as copies of tax returns, business licenses, photo ID, and bank statements.
  8. Complete and submit an application to your preferred lender. You can increase your chance of approval by knowing your qualifications beforehand.

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

Keep reading to find out the best external sources of money that can help your working capital.

What Types of Capital Sources Fund Your Working Capital Needs?

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 helps 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 small business loan that fits your business very easily, as there are many lenders out there that work every day with small businesses.

A small business loan is the best way to improve your working capital.

Get Approved For A Business Loan Today

Lines of Credit

Sometimes no matter what you do, businesses endure temporary slumps. To ride out these low cycles, short-term loans shore up your business’s financial health.

With a business line of credit, 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.


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 credit card limit every month will hurt your credit.

Trade Creditors

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.

This provides some wiggle room in your budget when your accounts payable aren’t due until 60 days out.

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.

Online Term Loans

Online lenders make funding easy so you don’t experience any downtime in your finances. Different from 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 they come with some extra perks.

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

How Does Working Capital Work in the Real World?

In the business world, “working capital” is a term used to describe the money that a company has on hand 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.

Working capital loans aid you on some level to keep your operational costs.

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), most probably you 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.

Working Capital is Synonym with Success

It doesn’t take long to transition from “What is working capital?” to “Sign me up!” It’s a huge relief to know you can control your cash flow to strike a balance between work and family obligations.

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

To achieve that measure of success, you can monitor your working capital ratio and take steps so that 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 a small business loan, 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.

Monitoring your working capital is an important way to maximize profitability and avoid losing credibility with lenders or customers.

As many business owners know, opportunities arise quickly.

By keeping a steady and reliable flow of cash, you can 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 not enough working capital.

Find the Best Small Business Working Capital Loans in 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 mission, “Never Leave a Business Behind” is heartfelt and fuels our passion to help other small businesses.

Camino Financial’s small business loan amounts range in size from $5,000 to $400,000 with fixed interest rates and monthly payments. 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.

Ready to take the first step to access capital and grow your business?


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?

To 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.

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.

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