What’s the Difference Between Small Business Loans & Working Capital Loans?

One of the most common and important questions we receive from small and mid-sized business owners is: “What’s the difference between a small business loan and a working capital loan?” The short answer is: quite a lot, actually!

Understanding Small Business Loans

Small business loans are offered by banks and credit unions to select business clients and members. This exclusive group includes those who have been in business for at least two years (though in some cases longer), and have perfect or near-perfect personal and business credit scores. They also have assets such as property, equipment and/or vehicles that can be used as collateral.

A small business loan application is extensive and requires substantial supporting documents. The approval process can also take weeks or months. In fact, some small business loans offered in conjunction with the SBA can take six months or longer to be assessed – and may still be rejected.

Furthermore, all small business loans are reported to all three credit bureaus, and therefore a borrower’s credit score will be affected. This makes potential future borrowing pricier, and it can also prevent businesses from establishing more favorable payment terms with suppliers and vendors.

Also, in many cases a business loan must be used specifically for the purpose stated in the application. For example, if the funds were requested to purchase inventory, then that’s what must be done. Deviating from the plan isn’t allowed, even if the business owner has a better or more profitable use of the funds.

And last but not least, a small business loan is paid back each month. There is no option to pre-pay in order to save interest. On the contrary, business owners who attempt to do so will face a stiff and unwelcome financial penalty.

Understanding a Working Capital Loan

A working capital loan is, simply put, a far more flexible business financing option. It’s appropriate for all types of businesses, including those that have been in business for a few months. A perfect or even good personal and/or business credit is also not necessary.

A working capital loan application is 1-page long (vs. several pages), and can be securely filled out online. The evaluation process is complete within 24 hours, and if approved/accepted, the funds are available within a matter of hours.

In addition, business owners can use the funds for any purpose they wish. There is no requirement whatsoever to get approval, or even disclose how the funds are being used.

Paying back a working capital loan is also different and, in the view of many business owners, more agreeable. That’s because rather than a large lump sum payment each month, a working capital loan is paid back daily via a small, fixed amount. These payments are automatic, and so there is no administrative burden. And while it’s not required, the loan can be paid back early if desired in order to save interest.

The Bottom Line

At Mulligan Funding, we see small and mid-sized businesses as our country’s economic engine. That’s why we’ve offered access to working capital loans since 2008, and in doing so helped thousands of small and mid-sized business owners help their business succeed – and in some cases, survive. It’s a legacy of support that we’re very proud of.

Call Mulligan Funding at 855-326-3564 to discuss your financing options today!

The information shared is intended to be used for informational purposes only and you should independently research and verify.

Note: Prior to January 23, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.