Loan types

The working capital loan, which is a purpose and not a product

Five different products get sold as working capital loans. Here is how to size the actual gap, and what $250,000 costs across every structure that writes it.

6 minute readUpdated 2026-07-29Written by the Exp Capital desk

There is no such thing as a working capital loan. There is a working capital need, and there are five or six different products that can fund it, priced from roughly 10 percent a year to well over 60. When somebody sells you a working capital loan without naming the structure, the first job is finding out what you are actually being offered.

Working capital is a balance sheet number: current assets minus current liabilities. The reason you need to borrow it is almost always the same. You pay for labor, materials, and inventory before your customers pay you, and the gap between those two events has to be funded by somebody. Fund it correctly and it costs a few points. Fund it with the wrong product and it costs several times that.

The gap you are actually financing

Size the gap before you shop for money

Most owners borrow a round number they picked in the truck. There is a real calculation, it takes five minutes, and it changes what you should ask for. Start with your cash conversion cycle: days of inventory on hand, plus days it takes customers to pay, minus days you take to pay your own suppliers.

Take a distributor with $3,000,000 in annual revenue and $2,700,000 in combined cost of goods and operating expenses. That is $7,397 of cash going out every day. Inventory sits 25 days. Customers pay in 45. Suppliers get paid in 36. The cycle is 25 plus 45 minus 36, which is 34 days. Multiply: 34 days at $7,397 a day means roughly $251,000 of cash is tied up in the cycle at any moment.

That $251,000 is the number to fund, and it tells you something else. This is not a one time need. It is a permanent feature of running the business at that volume, and it grows when the business grows. A permanent need funded with six month money will be refinanced forever. Read the cash conversion cycle and calculate yours before you fill out a single application.

The same $250,000, across every structure that writes it

What $250,000 of working capital costs, by product
Product	Time to funding	Typical payment	Finance cost, first 12 months
SBA 7(a), 10 years at 10.5 percent	30 to 90 days	$3,373 monthly	About $25,545
Term loan, 5 years at 12 percent	1 to 10 days	$5,561 monthly	About $27,911
Line of credit at 16 percent, fully drawn	2 to 7 days	Interest only, then principal	About $40,000 plus draw fees
Short term loan, 12 months at 1.24	1 to 3 days	$5,962 weekly	$60,000, fully retired
Merchant cash advance, 1.32 over 8 months	24 to 48 hours	About $475 daily	$80,000, fully retired

Finance cost on $250,000 over the first twelve months

That table is honest but it is not complete, and the missing piece matters. After twelve months on the SBA loan you have paid $25,545 in interest and you still owe roughly $228,000. After twelve months on the short term loan you have paid $60,000 and you owe nothing. Cheap money you carry for years is not automatically cheaper than expensive money you retire in one. Compare the cost per year that the money is outstanding, not the total dollar figure.

Cumulative finance cost on $250,000, at three month marks

How much you can actually get

Approval amounts on working capital products are driven by revenue and deposits, not by what you need. The rough rules of thumb below hold across most of the market and will tell you in about a minute whether your number is realistic.

Revenue based products such as advances and short term loans typically write 8 to 15 percent of annual revenue, or roughly one to one and a half times an average deposit month. A business banking $200,000 a month is generally looking at $200,000 to $300,000 across all positions.
Lines of credit are sized off average daily balance and deposit consistency more than gross revenue. A business that ends most days near zero gets a small line regardless of what it grosses.
Term loans are sized off debt service coverage. Take your annual cash flow, divide by 1.25, and that is roughly the total annual debt payment a lender will support across all your debt.
Factoring is sized off your receivables and your customers' credit rather than your own financials, which is why it can beat every other option for a business with strong debtors. See invoice factoring.
Existing positions reduce all of the above. Every open advance shows as a daily debit in your statements and comes straight off what a new funder will do.

Six months of statements, read the way an underwriter reads them

What underwriting looks at on a working capital file

For everything faster than a bank, the file is your business bank statements. Three to six months of them tell an underwriter more than a tax return does, because they are current and they are hard to dress up.

Average daily balance: The strongest single driver of your offer. A business averaging $40,000 a day gets a very different number than one averaging $4,000 on the same revenue.
Deposit count and consistency: Fifteen or twenty deposits a month reads as a real operating business. Two large wires reads as concentration risk.
Negative days and NSFs: A handful across three months is survivable. A pattern moves your pricing or ends the file.
Time in business: Six months opens the fast lane. Two years opens the term loan and bank lane at much better pricing.
Existing daily or weekly debits: Underwriters can see every open position. Never leave one off the application, because the statements will show it anyway.
Personal credit: Matters most on term products, least on revenue based ones, and barely at all on factoring.

One more thing about the statements. Underwriters are reading for the story as much as the totals, and the story they are most alert to is a business that recently took money and is already back. Two funding events inside ninety days reads as a business burning capital rather than deploying it, and it will cost you either the approval or several points of pricing. If you know you will need $250,000 in stages, say so up front and structure it once, rather than coming back twice.

Where working capital money sits on the map

Every product that funds working capital, plotted honestly

The lesson of that map is that speed and cost are the same dial. There is no product that is both fastest and cheapest, and every pitch that claims otherwise is a pitch rather than an offer. The practical move is to arrange the cheap facility during a good quarter, before you need it, so that when a real gap opens you are choosing from the bottom of the map instead of the top. That is the entire argument for setting up a line of credit you do not plan to draw.

What Exp Capital does with this

Exp Capital Solutions is a broker, not a lender. We do not approve anything or set anybody's pricing. What we do first is size the gap with you, because plenty of files come in asking for $250,000 when the actual need is $90,000 and a change in payment terms. Then we take one packaged file to the funding partners whose credit box matches it and show you the offers side by side with the payment, the frequency, and the total cost of each. When the cheapest correct answer is a line of credit or something slower than an advance, we say so, even though it pays us less.

Questions people actually ask

What is a working capital loan?

It is a purpose rather than a specific product. Any financing used to cover day to day operating needs like payroll, inventory, rent, and receivable gaps gets marketed under that name, including term loans, lines of credit, short term loans, merchant cash advances, and factoring. Always ask which structure you are actually being offered before comparing prices.

How much working capital should I borrow?

Calculate your cash conversion cycle, then multiply it by your daily operating cost. A business spending $7,397 a day with a 34 day cycle has roughly $251,000 tied up at any moment. That is the size of the real gap. Borrowing well above it costs money you do not need, and borrowing far below it means going back twice.

What credit score do I need for a working capital loan?

It depends entirely on the product. Revenue based short term products routinely fund in the 500s because they underwrite bank statements. Lines of credit generally start around 600 online and 680 at a bank. Term loans want 650 and up. Factoring cares about your customers' credit far more than yours.

How fast can I get working capital?

A merchant cash advance can fund in 24 to 48 hours, a short term loan in one to three days, a line of credit in two to seven days, an online term loan in one to ten days, and an SBA loan in 30 to 90 days. The gating item is almost never underwriting speed. It is how fast you deliver documents.

Can I get working capital financing with an existing loan open?

Usually yes, but the existing position reduces what a new funder will do, and some will decline outright rather than take second position. Underwriters see every recurring debit in your bank statements, so disclose everything up front. Refinancing the existing position into one larger facility is often cheaper than adding a second one on top.

Is a working capital loan the same as a merchant cash advance?

No. An advance is one way to fund working capital, and it is the fastest and most expensive one. It purchases future receivables rather than lending money, has no interest rate, collects daily or weekly, and is priced with a factor rate. A working capital need can just as easily be filled by a line of credit at a fraction of the cost.

Keep reading

Short term business loanTwelve months or less, priced with a factor instead of a rate.Business line of creditThe cheapest structure for a gap that keeps coming back.