SBA working capital loans: How they work and how to get approved

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  1. Introduction
  2. What is an SBA working capital loan?
  3. How is an SBA working capital loan different from other types of business financing?
    1. Cost
    2. Repayment terms
    3. Qualifying
    4. Speed
  4. Who qualifies for an SBA working capital loan?
    1. Business type and size
    2. Use of funds
    3. Financial credibility
    4. Time in business
    5. “Credit elsewhere” test
    6. Other requirements
  5. How to apply for an SBA working capital loan
    1. Choose the right SBA loan type
    2. Get your documents in order
    3. Find an SBA-approved lender
    4. Submit your application
    5. Wait for approval
    6. Finalize the agreement
  6. How do businesses typically use SBA working capital loans?
    1. Bridging cash gaps
    2. Financing inventory and supply costs
    3. Covering slow seasons
    4. Subsidizing payroll and hiring
    5. Launching marketing and growth initiatives
    6. Creating an emergency buffer
    7. Refinancing expensive debt
  7. How can businesses improve their chances of securing an SBA working capital loan?
    1. Strengthen your financial profile
    2. Build a specific loan rationale
    3. Thoroughly organize your documentation
    4. Emphasize your experience
    5. Offer collateral, if you can
    6. Apply before you’re in crisis
    7. Work with the right lender and ask for guidance

Cash flow problems have several causes. Sometimes, they’re the result of poor planning. Other times, you might be scaling faster than your revenue cycle can support. The working capital loans of the Small Business Administration (SBA) are meant to mitigate these problems. They’re structured, flexible funding options that are designed to help small businesses manage the in-between stages of growth.

Below, we’ll discuss how SBA working capital loans work, who’s eligible for them, and how to apply for and use them strategically.

What’s in this article?

  • What is an SBA working capital loan?
  • How is an SBA working capital loan different from other types of business financing?
  • Who qualifies for an SBA working capital loan?
  • How to apply for an SBA working capital loan
  • How do businesses typically use SBA working capital loans?
  • How can businesses improve their chances of securing an SBA working capital loan?

What is an SBA working capital loan?

SBA working capital loans are US government–backed loans designed to help small businesses cover everyday expenses such as payroll, rent, inventory, and utilities.

The SBA doesn’t lend the money directly. Instead, it guarantees part of the loan for banks or lenders, which reduces their risk and enables better terms, including lower interest rates, longer repayment periods, and more generous loan amounts.

Unlike loans for buying real estate or equipment, working capital loans help businesses stay fluid by covering day-to-day expenses. These loans don’t dictate how you use the money (within reason) so you can use them to:

  • Pay rent and wages

  • Stock up on inventory

  • Cover cash gaps between invoicing and payment

  • Fund marketing campaigns or seasonal hiring

If your business needs capital to keep moving through its current cycle without investing in long-term assets, an SBA working capital loan could be the right fit.

There are a few different types of SBA working capital loans, depending on how much flexibility or structure you need. The SBA 7(a) loan program includes SBA Express loans for faster decisions and Export Working Capital loans for businesses that generate export sales. You receive a lump sum and pay it back over time, typically with a lower rate and longer terms than you’d get from most lenders. In 2024, the SBA launched the 7(a) Working Capital Pilot program, which allows you to borrow up to $5 million as a monitored line of credit.

How is an SBA working capital loan different from other types of business financing?

Most financing options come with trade-offs such as higher costs, slower access to funds, and more risk. SBA working capital loans, for example, aren’t the fastest option, but they are affordable, flexible, and accessible to businesses that wouldn’t qualify for a traditional bank loan. Here’s how they compare with other forms of financing.

Cost

SBA loans provide some of the lowest-cost working capital options available. Thanks to the government guarantee, lenders can extend credit with lower risk so the interest rates are generally more favorable. Interest rates for SBA 7(a) loans can’t exceed SBA maximums, which are pegged to the prime rate or an optional peg rate.

Traditional bank loans might offer similar rates, but usually only to top-tier borrowers with pristine credit and long histories. Online loans and merchant cash advances tend to be much faster but typically carry higher interest rates.

Repayment terms

The repayment terms for the SBA’s Working Capital Pilot loans are up to five years, which keeps your monthly payments manageable. That’s a major advantage over private lenders, who might require full repayment within 12–24 months, or even sooner.

Lines of credit under the SBA accrue interest on only the amount drawn and revolve similarly to a credit card. That gives businesses room to adjust their borrowing as cash flow fluctuates, which is ideal for seasonal or cyclical models.

Qualifying

These loans were created for businesses that can’t otherwise secure conventional financing with reasonable terms. The underwriting process is rigorous but more inclusive. That means:

  • You don’t need perfect credit, but you must be creditworthy and demonstrate an ability to repay the loan

  • You don’t have to be profitable yet, as long as you can demonstrate a tangible plan for how the loan supports repayment

In contrast, traditional lenders tend to reserve working capital credit for borrowers with strong credit histories and multiple years of profitability. If your business is in an early stage, seasonal, or recently recovering from a downturn, an SBA loan might be your only real shot at affordable credit.

Speed

SBA loans take time. Standard 7(a) loans can take several weeks from application to funding. Between lender underwriting, SBA approval, and documentation, the full process can take a month or more, especially for larger or more complex loans.

SBA Express speeds this up—decisions can come in 36–48 hours. But the trade-off is a lower cap ($500,000), and even then, disbursement takes additional time. If your need is urgent, SBA loans probably won’t move fast enough.

Who qualifies for an SBA working capital loan?

SBA loans are designed for businesses that are solid enough to repay a loan but not quite strong enough to secure traditional financing on their own. Here’s what lenders and the SBA are looking for in applicants.

Business type and size

SBA loans are only for for-profit businesses—nonprofits aren’t eligible—and you need to be actively operating and based in the US or a US territory.

Your business must fall under the SBA’s definition of “small,” which is based on revenue or employee count and varies by industry. Most manufacturing companies with 500 employees or fewer qualify. So do most nonmanufacturing businesses with average annual receipts under $7.5 million.

Use of funds

You need to demonstrate a real business purpose for the funds, but they can be used broadly. Their uses can include:

  • Covering payroll or rent

  • Buying inventory

  • Covering cash flow during slow months

  • Bridging the gap between receivables and expenses

  • Funding contract work or seasonal hiring

As long as the money will support your core business, you can qualify.

Financial credibility

There’s no hard minimum across the board, but lenders still look for credit that’s strong enough to signal you’ll repay the loan. Lower credit scores might still be acceptable if the rest of your profile is strong, particularly with mission-based lenders.

You’ll also need to show a credible plan for repayment. If your business is already profitable, great. If not, you’ll need to back up your projections with logic and documentation that show how this loan will get you there. Be ready to present financial statements, tax returns, and a detailed explanation of your operating costs and revenue drivers.

Time in business

The SBA’s 7(a) Working Capital Pilot program requires at least 12 months of operation. SBA lines of credit don’t have a specific requirement, but you must already be an operating business.

“Credit elsewhere” test

This is a unique SBA requirement: you have to prove you can’t get similar financing on reasonable terms elsewhere. If a lender believes your business doesn’t meet conventional loan criteria—due to a short time in business, not enough collateral, or inconsistent cash flow—that usually satisfies the test.

SBA loans are meant to fill the gap when traditional financing isn’t a viable option, not to replace a loan you could easily get without government backing.

Other requirements

You’ll need to be in good standing with the government, with no defaulted federal debt or unpaid taxes. Expect to submit a business plan, an explanation of how you’ll use the funds, and personal financial disclosures for all guarantors.

How to apply for an SBA working capital loan

Applying for an SBA working capital loan involves a decent amount of paperwork, but the requirements are fairly predictable. Here’s a step-by-step guide to the process.

Choose the right SBA loan type

Before you apply, choose the SBA loan option that fits your working capital needs:

  • Standard 7(a) loans are best suited for flexible, one-time funding. You can borrow up to $5 million and use the money for almost any operating purpose.

  • SBA Express loans are a faster version of 7(a) loans with smaller loan limits (up to $500,000). Decisions often come within 36 hours so these are a good option if you need money quickly and can work with a lower cap.

  • Export Working Capital loans are specifically for businesses that need financing to support export sales. You can borrow up to $5 million with terms of 36 months or less.

  • The Working Capital Pilot program offers revolving lines of credit (up to $5 million) within the 7(a) framework. These are monitored lines that allow you to draw funds as needed, pay interest on only what you use, and support both domestic and export-related working capital.

  • The SBA’s CAPLines program offers lines of credit for short-term and cyclical working capital. There are specific CAPLines for seasonal fluctuations, contract work, and builders.

Get your documents in order

SBA lenders want a comprehensive, detailed view of your financial health and business operations. That means pulling together the following documents:

  • Business financials: A recent profit and loss statement, balance sheet, and cash flow statement.

  • Tax returns: Your business and personal returns, to confirm your income and help lenders assess your ability to repay.

  • Bank statements: Your business account activity. Bank statements are used to gauge cash flow trends and account balances.

  • Debt schedule: A list of your current business debts, with balances and monthly payments. This is especially important if you’re refinancing.

  • Organizational documents: Your articles of incorporation or formation, operating agreement or bylaws, business licenses, and Employer Identification Number (EIN).

  • Business plan or funding summary: A brief overview of your business, how the loan will be used, and how it contributes to repayment. Not every lender will require a formal plan, but most want to see a clear rationale for the loan.

  • Owner résumés (if requested): These are sometimes required for newer businesses or if you’re entering a new industry. Focus on relevant experience and how it allows you to run the business successfully.

Tools like Stripe can help consolidate your financial data. You can export clean reports on revenue, customer activity, and payment trends, which are exactly the kinds of information lenders want to see.

Find an SBA-approved lender

You’ll apply for working capital loans through a lender that works with the SBA, not through the SBA itself. You can find a lender using these sources:

  • Lender Match: This is a free tool on the SBA’s site that connects you with participating lenders based on your needs.

  • Banks and credit unions: Many, particularly larger regional or national institutions, offer SBA loans.

Some lenders focus more on real estate than on working capital or serve only larger clients. Don’t be afraid to shop around or ask directly about their experience with SBA working capital lending.

Submit your application

Once you’ve chosen a lender, it’ll walk you through its version of the SBA loan application. Expect to complete:

Incomplete or inconsistent documents can delay approval. If you’re projecting revenue, ensure it aligns with past trends and makes your assumptions clear.

Wait for approval

After you apply, your lender will underwrite the loan. If it’s an SBA Preferred Lender, it can approve the loan directly. If not, it’ll send the loan to the SBA for a guaranty decision. From there:

  • Standard 7(a) loans often take a few weeks to process

  • SBA Express decisions can come in 36–48 hours, but disbursement still takes time

Be prepared to answer questions or provide additional documents during underwriting. Staying responsive keeps the process moving.

Finalize the agreement

Once approved, you’ll sign a loan agreement, set up a disbursement plan (e.g., lump sum, revolving draw), and receive the funds in your business account. You might also secure the loan with collateral, depending on the agreed terms.

If you’re unsure about anything, use the free resources available. The SBA has local partners that can help you prep a loan package, including SCORE mentors, Small Business Development Centers (SBDCs), and Women’s Business Centers (WBCs).

How do businesses typically use SBA working capital loans?

SBA working capital loans are built for moments when cash is tight, the timing is off, or growth can’t wait. Here’s how these loans are often used.

Bridging cash gaps

Cash rarely comes in exactly when you need it. A working capital loan can:

  • Cover short-term needs such as payroll, rent, and utilities

  • Buy time when receivables lag behind expenses

  • Smooth out inconsistent income cycles without resorting to expensive short-term loans

For many businesses, just having a line of credit in place, whether it’s drawn on or not, is enough to avoid making reactive decisions during tight months.

Financing inventory and supply costs

Do you need to do a bulk order ahead of a busy season or restock fast-moving items to meet demand? Working capital loans often cover:

  • Large inventory purchases ahead of peak sales periods

  • Supply chain disruptions or delays that require up-front purchases

  • Early payment discounts from vendors

Turning cash into goods that can be sold or deployed quickly is a common use of SBA capital.

Covering slow seasons

Businesses that rely on seasonal revenue (e.g., tourism, retail, agriculture) use working capital loans to stay afloat during the offseason. These loans can be used to:

  • Pay staff during quiet quarters

  • Cover rent and fixed overhead

  • Maintain continuity until revenue increases again

The Working Capital Pilot program is especially useful here. It provides revolving credit lines designed for seasonal cycles and contract-driven businesses.

Subsidizing payroll and hiring

A short-term loan isn’t a long-term solution for payroll, but it can help:

  • Meet payroll obligations during a cash crunch

  • Ramp up hiring ahead of anticipated growth

  • Retain important staff during downturns or transitions

When applied judiciously, working capital can stabilize your head count or create room to invest in new roles.

Launching marketing and growth initiatives

Sometimes the cash crunch is about seizing a growth opportunity. You can use SBA working capital loans to:

  • Launch a marketing campaign

  • Fund an expansion or product rollout

  • Pay for software or services that improve efficiency or visibility

If the loan leads to increased revenue in line with your projections, that’s a strong use case to lenders.

Creating an emergency buffer

Unexpected expenses such as equipment failure, delayed payments, and surprise tax bills will occur. Businesses use SBA loans to:

  • Create a safety net without relying on high-interest credit cards

  • Quickly address shortfalls without halting operations

  • Maintain stability during broader disruptions (e.g., COVID-19, supply chain shocks)

An SBA line of credit can act as a form of self-insurance, if needed.

Refinancing expensive debt

Working capital loans can also be used to refinance old debt if that improves your financial health. You might:

  • Replace high-interest, short-term loans or merchant cash advances

  • Consolidate multiple debts into a single, more manageable loan

  • Free up funds by lowering monthly payments

If you’re currently paying a high rate for fast cash, refinancing into a longer-term SBA loan can ease the pressure on your finances.

How can businesses improve their chances of securing an SBA working capital loan?

To get an SBA loan, you must present a credible case that your business can repay the loan and will use it well. Lenders are looking for preparation, transparency, and a plan. Here’s how to increase your chances of a successful application.

Strengthen your financial profile

Lenders want to see decent personal credit scores for an SBA loan. You don’t need to be flawless, but you do need to show you can handle debt responsibly. Pay down high balances, fix errors on your report, and avoid new credit applications before you apply.

Next, ensure your books are clean and current. You’ll need recent, accurate financial statements that ideally show stable or positive trends.

Lenders want numbers they can rely on and a story they can follow. Tools like Stripe can help produce clean reports and real-time summaries of your business activity as supporting documentation.

Build a specific loan rationale

Generic loan applications rarely stand out. Lenders want to know:

  • What you’re using the money for

  • Why you need it now

  • How it will improve your cash flow or grow your revenue

Be explicit: if you’re hiring, state how many roles and the impact they’ll have. If you’re buying inventory, tie it to expected sales. If you’re covering short-term expenses, show how that leads to future income. The more specific you are, the stronger your case will be.

Thoroughly organize your documentation

SBA loans require many documents. Missing or incorrect information is a common reason for delays. Ensure:

  • Your financials match your tax returns

  • Your debt schedule is current and accurate

  • Your personal and business finances are clearly separated

  • Your supporting documents (e.g., bank statements, legal entity docs) are all ready to go

Messy paperwork can make lenders question whether you’re ready for the responsibility of the loan.

Emphasize your experience

Demonstrate that your team knows how to run this business. Include brief bios or résumés for managers or founders, especially if your business is in an early stage or entering a new market. Detail how you’ve weathered challenges, managed growth, or been successful in similar industries.

If there are gaps (for instance, you’re strong on product but not on finance), show how you’re covering them. Perhaps you’re supported by an outsourced chief financial officer (CFO), a mentor, or someone on your advisory board. The goal is to show your business is in capable hands.

Offer collateral, if you can

SBA loans don’t require collateral in every case, but lenders almost always ask for it. And offering it can help your case. Here are some assets you might use as collateral:

  • Equipment or machinery

  • Inventory or receivables

  • Unencumbered real estate

If you don’t have much collateral, that’s OK. But you’ll need stronger financial credibility as an offset.

Apply before you’re in crisis

Lenders prefer to finance stable businesses, not ones already in crisis. Don’t wait until you’re two weeks from missing payroll. Apply when your business is healthy enough to make repayments and when your recent financials tell a positive story.

If you’re in a temporary downturn, demonstrate signs of recovery: improving margins, pipeline growth, or returning customers.

Work with the right lender and ask for guidance

Not all SBA lenders are the same. Some specialize in real estate, while others focus on working capital. Look for a lender with:

  • Experience in working capital loans

  • Familiarity with your industry or business model

  • A responsive point of contact

Don’t hesitate to ask questions. A good SBA lender will help you refine your application and flag weak spots before it underwrites the loan. If you’re unsure, consult a free SBA resource that can help you prepare.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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