SBA Working Capital Loan: Is It the Right Loan for You?

Do you have the working capital necessary to help build – or rebuild - your business? Our guide explains why you need working capital, why an SBA 7(a) loan is the best option, and how to use funds.

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What is working capital?

Working capital is defined as the difference between current assets and current liabilities. According to the Small Business Administration’s website, current assets are the most liquid of your assets.

Cash and cash equivalents can be bank accounts, marketable securities, and Treasury bills. A non-liquid asset example is a real estate investment because it can take months to receive cash from the sale. For example, a company might own real estate and decides to liquidate that asset to pay off a debt a month or less. It might take more than one month to sell the property and a quick sale could result in a financial loss.

Current liabilities are any obligations due within one year. Working capital measures what is leftover once you subtract your current liabilities from your current assets. This can be a positive or negative number. Working capital represents the cushion of protection you can give your short-term creditors.

Why a business needs working capital

It’s critical to have positive working capital so that your small business can meet operational needs. Here are reasons to keep a healthy amount of working capital on hand.

To increase profits

“Increasing profits” may sound like an unreachable goal for a hard-working business owner. But there are solid strategies you can put in place to up your sales. Learn strategies to attract new customers and sell more to your existing customer base in a post from the SmartBiz Small Business Blog: 10 Tips and Tricks To Increase Sales For Your Small Business.

Equipment upgrades, repairs, or replacements

When you’re ready to buy, repair, or replace large, tangible assets like trucks and machinery, you might need additional capital to finance the purchase. A working capital loan can cover everything from medical tools to computers to restaurant ovens, depending on your industry. You’ll be able to increase productivity, maximize efficiency, and bring in more sales with up-to-date equipment.

Marketing expenses

Marketing can include everything from social media promotion to attending industry trade shows. Other marketing costs that can be covered by a working capital loan include:

  • Advertising
  • Agency fees
  • Customer surveys
  • Development of advertising and other promotions
  • Gifts to customers
  • Online advertising
  • Printed materials and displays
  • Social media monitoring and participation
  • Sponsorships

Unexpected expenses

Don’t forget, cutting expenses may help you to increase your profits and stretch your company’s working capital even further. By keeping a close eye on spending and making reductions where you can, your business might generate even bigger profits that you can turn around and reinvest in better ways.


Redirecting money back into your company is a positive step towards short-term growth. Be sure to leave some room for regular expenditures when deciding how much working capital to reinvest. Reinvesting in your business can include saving for equipment, increasing marketing, and more. A working capital loan can cover your regular expenses and help you invest in growth activities that will help you meet your long-term goals.


SBA 7(a) loans for working capital

SBA Loans

If you can qualify, an SBA 7(a) loan is generally the best option for working capital. The 7(a) Loan Program is the Small Business Administration’s primary program for helping small businesses with financing. The SBA does not actually make direct loans; instead, it provides loan guarantees, promising the bank to pay back a certain percentage of your loan if you are unable to.

Frequently seen as the “gold standard” in small business loans, an SBA loan might have the longest-terms (10 years) and lowest-interest available in the marketplace. SBA lenders look for established businesses and applicants with good credit, a solid business plan, collateral, and a demonstrated ability to repay the loan. In addition to working capital, SBA 7(a) loans can be used for debt refinance and commercial property purchase or refinance.

The SBA loan process has a reputation for being cumbersome but that’s not true if you work with SmartBiz Loans®. We’ve partnered with banks that provide SBA loans and we get you to a “yes” faster and easier by matching you with a bank most likely to fund. The SmartBiz platform is 100% online, making document collection much simpler than faxing, mailing or hand delivering paperwork. Loan seekers can pre-qualify with SmartBiz in as little as 5 minutes for a loan from $30,000 - $5 million. Funds can then be in your bank account in as fast as 7 days after your application is complete.

Additional working capital options

Traditional Bank Loans

Proceeds from a bank term loan can be used for working capital to help meet your business goals. An additional benefit? Paying off a bank term loan responsibly helps to build business credit.

Learn more here about Bank Term loans available through the SmartBiz bank network: Bank Term Loans.

Lines of Credit

Another type of small business financing available from banks and other lenders is a line of credit. Similar to a credit card, business owners can take out funds on an as-needed basis. Credit lines often have shorter repayment terms and are best for short-term working capital needs. The costs involved in establishing a credit line are one of the drawbacks. Up-front fees are required to establish the line and a business must pay interest on the money it uses from the line of credit. Learn more here: Line of Credit for Small Business: Pros and Cons.

Credit Cards

Small business credit cards provide your business with a number of advantages. They make it easier to separate your personal and business expenses. Small business cards usually offer a higher credit limit than any personal consumer cards. They give you the ability to manage cash flow, as in most cases you’ll have 20 to 30 days to pay off any business expenses without interest. Small business credit cards also allow you earn rewards like points or cash back on most business expenses.


Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding makes use of the easy accessibility of vast networks of friends, family and colleagues through social media websites like Facebook, Twitter and LinkedIn to get the word out about a new business and attract investors.

Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists. However, there are big drawbacks to going this route for working capital. Review this article on the SmartBiz blog: Reasons to Avoid Small Business Crowdfunding.

Selling equity

When a business owner uses equity financing, they are selling part of their ownership interest in their business. This can be a complex strategy so working with an attorney is recommended.

Trade credit

Trade credit is an important external source of working capital financing. It is a short-term credit extended by goods and services suppliers in the normal course of business, to a buyer in order to enhance sales.

In conclusion

As always, before seeking a loan or another source of funding, do your homework. Seek out transparency so you can determine the true cost of a loan including APR, all fess and additional costs. The key for working capital is to get the lowest cost funds available. Look for a low APR and long terms.