There are many different types of working capital loans that can help cover day-to-day operating expenses, such as short-term working capital loans, government-guaranteed loans and lines of credit.
With the increased need for capital many business owners face, it’s no surprise that 58% of firms were more likely to seek financing for operating expenses than other needs, according to the Federal Reserve Banks’ State of Small Business Credit Survey. In fact, the survey noted that paying operating expenses was the No. 1 financial challenge small business owners faced.
If you’re looking for funds to improve and maintain your operating capital, you must decide which option best aligns with your particular needs. To do so, it’s important to understand that the foundation of each working capital loan stems from a different loan type.
Short-term working capital loans give you the ability to run your business without disruption.
Short-term business loans provide working capital for companies navigating obstacles, like sudden cash-flow emergencies. They also can enable you to embrace exciting revenue opportunities.
This type of working capital loan usually ranges from 3 to 18 months and is repaid in daily or weekly increments.
SBA loans are partially guaranteed by the Small Business Administration (SBA) and provide access to working capital for business owners who may not meet conventional bank loan requirements.
SBA-backed loans decrease the risk for lenders, helping them offer some of the best working capital loan rates they can to more borrowers.
Many businesses can qualify. SBA working capital loans are a preferred option for those who can obtain them.
Lines of Credit
A business line of credit (LOC) is a perfect solution for revolving working capital needs.
A line of credit allows you to withdraw what you need up to your credit limit. You’ll pay interest on the amount you borrow.
In short, it’s the perfect type of working capital loan for you if your funding needs are fluid.
Merchant Cash Advances
Merchant cash advances (MCAs) can provide working capital to businesses that want funding fast and don’t want to jump over hurdles to get it.
Merchant cash advances are upfront sums of capital advanced to borrowers against their business’s future sales. These are short-term financing programs and are repaid through smaller daily or weekly payments until the advance balance, along with any fees, are paid in full.
Out of all types of working capital financing products, merchant cash advances offer the most accessible qualification requirements. Actually, businesses that applied for merchant cash advances saw an 84% approval rate, according to the Federal Reserve Banks’ survey, second only to equipment loans, which had an approval rate of 87%.
Once you’re approved for a merchant cash advance, funds can be placed in your account within 24 hours.
If you’re looking for fast working capital loans for bad credit, MCAs are one of the best options.
Accounts Receivable Financing
If your business has many unpaid invoices or typically experiences a long payment cycle, accounts receivable financing offers a solution.
Accounts receivable financing, also known as invoice financing, is an alternative to fast working capital loans. With this type of funding, you get instant access to cash that’s tied up in your accounts receivables.
By offering the value of your invoice as collateral, you could qualify for an advance of up to 80% of the total invoice. This means you can continue to manage the costs of your business.