Requirements for Working Capital Loans

Edited

A Working Capital Loan is a short-term financing option that provides businesses with the cash flow needed to cover everyday operational expenses, such as payroll, rent, inventory, and utilities. It’s designed to help businesses manage cash flow gaps, handle unexpected expenses, or take advantage of new opportunities without disrupting their day-to-day operations. Working capital loans are ideal for businesses with regular operating costs that need a quick and flexible funding solution.

This guide outlines the key qualifications and steps to qualify for a working capital loan with FundLocal.


What is a Working Capital Loan?

A working capital loan is a loan designed specifically to fund the short-term operational needs of a business. Unlike long-term loans that are used for expansion or major purchases, working capital loans are typically repaid over a shorter period, such as several months to a year. These loans are highly flexible and can be used for various business needs, including managing cash flow during slow periods, covering seasonal expenses, or handling one-time operational costs.


Key Requirements to Qualify for a Working Capital Loan

Qualifying for a working capital loan requires that your business demonstrate financial stability and the ability to repay the loan within a relatively short time frame. Below are the primary requirements FundLocal considers when reviewing your application for a working capital loan.


1. Time in Business

To qualify for a working capital loan, your business must have been operational for at least 6 months. This ensures that your business has had time to establish a financial track record and generate revenue.

  • Minimum Requirement: 6 months in business

  • Why It’s Important: A business that has been operating for at least 6 months is more likely to have consistent cash flow and the ability to handle loan repayments, reducing the lender’s risk.


2. Minimum Annual Revenue

FundLocal requires businesses to have a minimum annual revenue of $100,000 to qualify for a working capital loan. This revenue threshold ensures that your business has sufficient cash flow to cover loan repayments while continuing to operate effectively.

  • Minimum Requirement: $100,000 in annual revenue

  • Why It’s Important: Annual revenue is a strong indicator of your business’s financial health and its ability to repay the loan. Lenders need assurance that your business generates enough income to manage both operational costs and loan repayments.


3. Recent Business Bank Statements

You will need to provide 3-4 months of recent business bank statements as part of your working capital loan application. These statements help us assess your business’s financial activity and cash flow stability.

  • Standard Requirement: 3 months of bank statements for most states

  • Special Requirement: 4 months of bank statements for businesses in California, New York, and Utah

  • Why It’s Important: Your business bank statements offer insights into your cash flow, daily balances, and overall financial stability. A consistent stream of deposits and a healthy daily balance improve your chances of qualifying for a working capital loan.


4. Business Location

Your business must be based in the United States to qualify for a working capital loan with FundLocal. Specific state regulations may apply, particularly in California, New York, and Utah, which require additional documentation.

  • Minimum Requirement: U.S.-based business

  • Why It’s Important: Different states have specific lending regulations, and businesses in these areas must comply with these rules. FundLocal works to ensure your business meets the legal and regulatory requirements for your state.


5. Business Structure and Legal Status

Your business must be legally registered and compliant with local, state, and federal regulations. You must operate under a valid business structure, such as an LLC, corporation, or sole proprietorship, and have any necessary licenses or permits.

  • Minimum Requirement: A legally registered business (LLC, Corporation, Sole Proprietorship, etc.)

  • Why It’s Important: A valid business structure ensures that your business is legitimate and legally able to enter into loan agreements. Lenders require that businesses be properly registered and compliant with state and federal laws to qualify for financing.


6. Creditworthiness

While FundLocal does not require a hard credit check for an initial funding quote, a soft credit inquiry may be performed during the final approval process. A soft credit check does not impact your credit score and helps assess your business’s creditworthiness. In some cases, personal credit may also be considered.

  • Minimum Requirement: No hard credit check for the quote, but a soft credit check for final approval may be required.

  • Why It’s Important: A soft credit check helps lenders evaluate your business’s ability to manage credit and repay the loan, without impacting your credit score. A strong credit history can lead to more favorable terms, but it’s not the sole factor in determining eligibility.


7. No Open Bankruptcies

Your business must not have any open or active bankruptcy proceedings to qualify for a working capital loan. If your business has successfully exited bankruptcy, you may still be eligible depending on your financial health.

  • Minimum Requirement: No active bankruptcies

  • Why It’s Important: Active bankruptcies indicate financial instability, making it difficult to qualify for new financing. However, businesses that have exited bankruptcy and are now financially stable may still qualify based on their current financial status.


Steps to Qualify for a Working Capital Loan

If you meet the basic eligibility requirements, the next step is to apply for a working capital loan. Below is a step-by-step guide on how to qualify:


Step 1: Provide Basic Business Information

The first step in applying for a working capital loan is to provide some essential information about your business. You will need to submit:

  • Business name and legal structure (LLC, Corporation, Sole Proprietorship, etc.)

  • Industry type: The nature of your business (e.g., retail, construction, professional services)

  • Annual revenue: Your business’s annual revenue, estimated or actual

  • Time in business: How long your business has been operating


Step 2: Submit Recent Business Bank Statements

You will be required to submit 3-4 months of recent business bank statements to verify your business’s financial health and cash flow patterns. These statements should show:

  • Revenue patterns: Consistent deposits that demonstrate steady income.

  • Daily balances: Maintaining a positive balance indicates that your business is financially stable.

  • Expenses: Your business’s ability to manage operational expenses and still have room for loan repayment.


Step 3: Soft Credit Check (If Applicable)

FundLocal may conduct a soft credit inquiry as part of the approval process. This check will not affect your credit score but is used to evaluate your business’s creditworthiness and ability to handle a working capital loan.

  • No Hard Credit Check for Quotes: Exploring your funding options will not impact your personal or business credit score.


Step 4: Receive a No-Obligation Quote

Once your application is reviewed, FundLocal will provide you with a no-obligation quote for the working capital loan. This quote will include:

  • Loan amount: The total amount of funding available for your business.

  • Interest rates: The applicable interest rate for the loan.

  • Repayment terms: Details about the loan term, repayment schedule, and any associated fees.

You are free to review the terms and decide whether to proceed without any obligation to accept the offer.


Step 5: Accept or Decline the Quote

After reviewing the loan offer, you can either accept the terms and proceed with the loan or decline the offer if it doesn’t fit your business’s needs. There are no penalties for declining the offer, and you are free to reapply at a later time.


Tips to Improve Your Chances of Qualifying

If you’re looking to improve your chances of qualifying for a working capital loan, here are some steps you can take to strengthen your application:

1. Build a Positive Cash Flow

  • Ensure your business maintains a steady and positive cash flow by managing expenses efficiently and increasing revenue where possible. Consistent income is key to securing a working capital loan.

2. Strengthen Business Credit

  • Pay down existing business debts and improve your business credit score to enhance your creditworthiness. This can lead to better loan terms and higher approval odds.

3. Organize Financial Documentation

  • Keep your business bank statements, tax filings, and other financial documents well-organized and up to date. Having accurate financial records makes the application process smoother and faster.

4. Reduce Existing Debt

  • If possible, pay down any existing business debts before applying for a working capital loan. Lower debt levels can improve your business’s financial standing and increase your chances of approval.


Summary of Qualification Requirements for Working Capital Loans

Eligibility Criteria

Minimum Requirement

Why It’s Important

Time in Business

6 months

Demonstrates stability and operational history.

Annual Revenue

$100,000

Ensures your business has sufficient cash flow to cover loan repayments.

Business Bank Statements

3-4 months of bank statements

Verifies cash flow stability and financial health.

Business Location

U.S.-based business

Complies with U.S. lending regulations.

Business Structure

Legally registered business (LLC, Corporation, Sole Proprietorship, etc.)

Ensures your business is legitimate and compliant with local laws.

Credit Check

Soft credit inquiry (no hard pull for initial quotes)

Evaluates creditworthiness without affecting your credit score.

No Open Bankruptcies

No active bankruptcies

Demonstrates financial stability and reduces risk for the lender.


Ready to Apply for a Working Capital Loan?

If your business meets the eligibility requirements and you’re ready to apply for a working capital loan, FundLocal’s process is fast and simple. Start by submitting your basic business information and recent bank statements, and we’ll provide you with a no-obligation quote tailored to your business’s needs. If you have any questions or need assistance with the application, our support team is here to help!