Working Capital Line of Credit – A Brief Guide

Working capital is used to fund the daily operations of a business. These types of loans are not used to purchase long-term assets or investments and are used instead to provide the working capital that meets the short-term operating needs of a business.

Costs such as payroll, rent, and loan payments may involve those needs. In this way, working capital loans are essentially loans from corporate debt that a business uses to fund its everyday activities.


Are you planning to apply for this type of loan? Check out this simple guide for you.

Working Capital Line of Credit - A Brief Guide
Image Source: OnDeck

Pros and Cons of a Working Capital Line of Credit

The immediate advantage of a working capital loan is that it is quick to access and helps business owners to quickly cover any gaps in spending on working capital.

The other noticeable advantage is that it is a form of debt financing and does not require an equity transaction, meaning that even if the financing need is dire, a business owner retains full ownership of their company.


Some loans with working capital are unsecured. This means a business is not expected to put down any collateral to secure the loan. However, for an unsecured loan, only companies or business owners with a high credit rating are eligible. Businesses with little to no credit can only receive secured loans and must provide collateral.

Are You Qualified?

Lenders will examine the entire health of your balance sheet as you apply for a line of credit, including your working capital ratio, net working capital, annual sales, and other variables.

Since the business and personal finances of small business owners tend to be closely linked, lenders will also look at the individual’s financial statements, credit score, and tax returns. You’ll be asked for a personal repayment guarantee.


While several variables may affect the size of your credit line of working capital, a rule of thumb is that it should not exceed 10 per cent of the revenue of your company.

Secured vs. Unsecured Loans

It’s important to note that there are two forms of credit lines of capital when applying for your loan.

Secured credit lines require you to commit collateral. Things like savings or real estate may be included in these properties. You could be eligible for a higher line of credit line if you put real estate as collateral. 

The principle behind pledging your assets is to have a safety net for the bank or lender who will cover your loan if you can’t. This is just a backup and most likely won’t happen because your line of credit will be paid back.

Unsecured loans can be easier to get because to get the loan, you don’t have to provide assets. Based on your personal and company line of credit experience, unsecured loans are accepted. When deciding the amount of the loan and your approval, the lender will also look at the cash flow of your company.

Make Sure Your Business Is Qualified

A capital line of credit can sound like the solution and a fast fix to all your business problems. This is because most company owners do not meet the application process’s minimum criteria. For example, your company should be a least six months old.

A company that is less than six months old, or is unable to provide six months of funding, will not be eligible for a credit line of capital.

Your organization should earn at least $50,000 in annual profits. If you earn less than this, it still might be worth applying if you fulfill the minimum criteria of your lenders. Every lender has exceptional standards of its own, and some can be versatile.

To qualify, you do not need a minimum FICO ranking. As the FICO score will not be taken into account, this makes it simpler for individual enterprise and company owners.

How Much Do Lenders Provide?

For small business owners, these are some of the best working capital lines of credit.

American Express

American Express Business Line of Credit is a loan for working capital. The loan can go as high as $250,000, and applicants can choose between repayment periods of six months, 12 months, and 18 months.

Applicants must be over the age of 18, have a business that is at least one year old with an average monthly revenue of $3,000 and a FICO score of 640.

Headway Capital

Headway Capital is another lender that offers lines of credit for working capital. With terms from 12 to 24 months, their commodity ranges from $5,000 to $100,000. 

With this working capital line of credit option, you will be able to choose between weekly or monthly payments. Approved applicants also can get money fast, within one day, with their fast funding promise.

Working Capital Line of Credit - A Brief Guide
Image Source: RAC Management Consultancy Ltd. 


A line of credit for working capital can vary in size from $1,000 to $1 million or more. Remember that no matter what, the size of your credit line won’t mean you’ll be paying that much back. You’ll just have to repay what you spend, as is the case with any line of credit.

Disclaimer: All credit products carry risk. Be aware of these risks by reading the associated terms and conditions.