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Online Working Capital

Written by CMG News Contributor, Doug Carleton

Of all the different kinds of financing used by business owners, one of the most prevalent is short-term working capital. The best way to meet these needs is with a bank line of credit. The difficulty with that, especially for early-stage companies (often less than two years old), is that their working capital needs are often not large enough to make the efforts worth it for a bank. Banks, in general, often already have a built-in bias against small businesses. And with working capital loans, banks have to spend much more time than any longer-term loan. If it has a 90-day loan, for example, it will either get paid off, which means paperwork, or not paid off, a new loan created, probably a different interest rate and term, new notes to sign, etc. (lots more paperwork).

To fill this gap and take advantage of the tremendous computing power available today, more and more non-bank lenders have appeared to serve the small business market. That computing power enables these lenders to make decisions almost immediately after the borrower applies. The lenders take advantage of the vast amount of data available on us and create algorithms that can analyze them instantly to make credit decisions, such as credit scores, utility payments, insurance claims, mobile phone data, social media posts, Yelp (and others) reviews, etc. This analytical speed often means that credit decisions based on the algorithms created by the lender can be made in minutes, and in some cases, makes funds available the same day. But to take advantage of this speed, you’re going to pay for it—a lot.

Here are just a few examples using just the costs of funding from some different working capital lenders. Many other factors come into play for the lender to decide the final initial interest rate; things such as time in business, credit score, loan amount, and term (maximum time before payoff is required), to name a few. The examples:

  • Lender A: 2.9% - 18.72% fixed fee

  • Lender B: 1.5% - 10% per month

  • Lender C; 9.9% - 99%

  • Lender D: 0.25% - 1-7% per week

There are two important things that you should come away with here:

  1. Research, research, research. There is a tremendous of information available on the internet about online working capital lenders of all types. Learn everything you possibly can on all kinds but especially the working capital lenders. But if you are beginning to settle in on one or two, you need to get into the details of the terms. There could be lien requirements on assets that would never occur to you unless you don’t pay back your loan, and then you might find that the lender can liquidate certain of your assets. So your research should be in minute detail if possible.

  2. But I think the most important thing you need to understand is how working capital loans are designed to work. They are designed to be paid off in a brief period to cover certain costs incurred while waiting for payments on what you have sold. Think credit cards. Pay it off in 30 days, no interest. But if you don’t pay it off at the end of the term, interest charges on the unpaid balances, kick in and depending on how the lender calculates them, the costs can be high.

Online working capital lenders provide incredibly valuable services that the banks can’t (or more likely) won’t. Just make sure you understand what you’re getting into. Convenience can be expensive.


This blog entry is a slightly edited excerpt from Doug Carleton's 'The Daily Life Of A Small Business Owner' series. Doug was a mentor with SCORE, Startup Virginia, and Lighthouse Labs, and has 25+ years of experience in small business finance including 12 years in SBA lending. To contact Doug directly, please email him at


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