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What Are Working Capital Loans?

Working capital loans are designed to help companies pay for short-term or day-to-day expenses. For those in the trucking industry, working capital loans can be used to manage expenses, cover payroll, and even provide additional cash flow during slow or off-peak shipping seasons.

This article will explain how these loans work and how working capital loans can impact your business.

How Do Working Capital Loans Function?

Working capital loans can be obtained from a number of sources, but their common feature is their ability to cover the costs of everyday operations. They’re ideal for companies with predictable business cycles, such as those in the trucking and logistics industries.

How Do You Get a Working Capital Loan?

Many financial institutions offer working capital loans for small business owners. Some even specialize in loans suited to truckers and other industry professionals. You might consider the following companies as a starting point:

  • Wells Fargo
  • CAG Truck Capital
  • Commercial Fleet Financing
  • Bank of America

These companies already provide commercial truck loans, which means they understand the industry and your needs.

What Should I Use a Working Capital Loan for?

Business working capital loans can be used for a variety of short-term expenses, including:

  • Payroll
  • Managing equipment
  • Paying rent
  • Restocking supplies

The only definite restriction is that working capital loans can’t be used to finance long-term business expenses, which means you can’t use these loans to purchase a new truck.

Is Payroll Considered Working Capital?

Yes — you can use working capital loans to cover payroll expenses, and they may even be used to cover other employee-related expenses such as training materials or necessary supplies.

What Is the Interest Rate for Working Capital Loans?

Interest rates are determined by individual financial institutions and tend to vary based on the size of the loan, the borrower’s qualifications, and the length of the term.

Forbes reports that the interest rates for business working capital loans can range anywhere from 6% to 99%, though the SBA 7(a) loan program will have more predictable interest rates that fall between 5.5% and 9.75%.

Are There Different Kinds of Working Capital Loans?

They come in several forms, including:

  • SBA loans
  • Term loans
  • Business lines of credit
  • Business cash advance

Additionally, invoice factoring may be another way to secure working capital, as well as eliminate some of the outstanding debts your company might be facing.

Example of a Working Capital Loan

Hector owns a trucking company that focuses on delivering consumer staples to retail chains along the West Coast. However, due to economic downturns, Hector’s company has been struggling to meet its day-to-day expenses, and Hector worries about having the cash flow to cover his payroll expenses.

Thankfully, Hector was able to secure a working capital loan through the SBA 7(a) loan program, obtaining a $75,000 loan with a 10-year term and a 6% interest rate.

Working Capital Loan Considerations

Before you apply for a working capital loan, there are several factors to consider:


As we noted, these loans tend to have higher interest rates compared to other types of business loans. While the SBA loans tend to offer more reasonable terms, they still tend to be 2.25% to 4.75% above prime, which can add to the total cost of these loans.


Remember, working capital loans are designed for short-term costs only. If you want a new cab or trailer, you’ll likely discover that these loans are not able to cover these costs.

Credit Score

Working capital loans tend to favor those with strong personal credit. SBA 7(a) loans, for example, demand that you have a FICO score of at least 690. Having low credit won’t prevent you from obtaining a loan, but you won’t have access to the most favorable rates.


There are many advantages to taking out working capital loans for small business needs. These advantages include:

  • Providing cash flow to cover slow periods in your business cycle
  • Providing access to assets to cover immediate, day-to-day needs
  • Being unsecured so you don’t need to put down collateral
  • Requiring no equity transaction, leaving you in full control of the company

When you’re facing immediate business needs, there are few substitutes for a working capital loan.


At the same time, there are several disadvantages to working capital loans, including:

  • The application process for some loans (such as the SBA 7(a)) can be intensive
  • Interest rates are higher than other types of business loans
  • The most favorable loan terms and rates go to those with strong credit
  • The loans are tied to your personal credit, which can drop if you miss payments

Of course, for business owners facing immediate needs, these risks might pale in comparison to the rewards offered by having an influx of working capital.

Working Capital Loan vs. Term Loan

What are term loans? A term loan simply refers to a loan that must be repaid over a period of several years. Technically, a term loan can serve as a working capital loan, though working capital loans are designed to be short-term. While a term loan may be short, it can also be drafted for as long as 30 years.

Term loans can also be used to make major purchases, which working capital loans cannot. Most term loans can be used to buy new machinery, real estate, or any other physical assets for the business, while working capital loans can only be used for short-term expenses.

Finally, term loans can be a bit harder to obtain since they tend to be larger and cover a longer period. Lenders will perform a thorough overview of you and your credit history before approving the loan.

Get the Resources You Need to Thrive

Working capital loans allow trucking companies to cover the bills, even when business is slow. However, to thrive in the industry, you’ll also need to stay current with the latest developments and trends. 

Stay connected to FreightWaves, and you’ll receive additional content and resources sent straight to your inbox, so you and your company can make the most of every mile. 

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TAFS is More than Freight Factoring

As one of the industry leaders, TAFS assists trucking companies to increase cash flow with some of the lowest factoring rates in the industry and a 1-hour advance option.