Businesses can apply for working capital loans to finance short-term operational costs including payroll, debt payments, and rent. That can include everything from large purchases and unexpected expenses to everyday cash flow. Typically, working capital loans come with short repayment terms, and businesses do not usually use this type of loan for long-term investments such as real estate.

Many businesses don't earn stable or predictable income throughout the year. Retailers, for example, sell more products during their fourth quarter, holiday season. In such cases, companies may need to wait months until they receive enough money to pay for daily operating costs. When a company doesn't have enough cash on hand to pay for day-to-day expenses during slow periods, it can secure a working capital loan to cover costs. These loans usually make sense for companies that have high seasonality or cyclical sales that require extra funding during slow periods for business.

Working capital loans carry very short repayment terms, usually 12 months or less. Typically, repayment structures will require borrowers to make loan payments either daily or weekly. Because of the short-term repayment, businesses should resort to this sort of loan if their budget can handle payments frequently and on time. Businesses that need to pay for everyday expenses can apply with online lending services for a working capital loan. Keep in mind that online lenders have requirements in order to qualify. Lenders will look at criteria such as credit score, revenue, years in operation, and so forth. Eligibility requirements will vary from lender to lender.

Merchant cash advances tend to have high borrowing costs and short repayment periods, making them difficult for budgeting. There are several types of business loans out there so companies should compare options before moving forward with the lending process. Online lending marketplaces offer a range of alternative loan options including: 

• SBA loans
• Business lines of credit
• Business credit cards
•Equipment loans
• invoice factoring

Pros:

Short-term loans: Businesses won't get tied up in long-term loans. Short-term lending periods make working capital loans ideal for companies that need fast cash to supplement slow seasons of business during the year.
Unsecured financing: Working capital loans require little to no collateral.
Fast funding: Borrowers can quickly access cash with an easy online application and fast approval process, usually within 48 hours.
Early payment options: Businesses can pay off loans early without penalty fees. In fact, because these loans are designed for the short term, early repayment can improve your credit score.

Cons:

Short repayment periods: Borrowers may need to repay their loan on a daily or weekly basis in 12 months or less, depending on the terms of the loan.
No partial repayment plans: Lenders require borrowers to pay back the amount borrowed in full, even when a business files for Chapter 11 bankruptcy.
High-interest rates: Working capital loans usually charge higher interest rates than long-term loans.

*American Express Business Line of Credit Disclosure: All businesses are unique and are subject to approval and review. The required FICO score may be higher based on your relationship with American Express, credit history, and other factors. American Express® Business Line of Credit offers two loan types, installment loans and single repayment loans for eligible borrowers. All loan term types, loan term lengths, and pricing are subject to eligibility requirements, application, and final approval. This chart contains general information about the American Express® Business Line of Credit installment loan type only.
**Biz2Credit Disclosure: See website for details. Varies depending on product and qualifications.