Working capital is defined as the difference between your current business assets and liabilities.
A working capital loan can help your business manage these cash flow disruptions while still handling your routine expenses.
Positive working capital is essential to your business’s financial success. If you are operating with insufficient capital, it can be difficult to move forward when you experience gaps in your cash flow.
Your business can use this type of loan for a number of reasons. It can be used to pay your employees and afford rent during your annual lulls or it can be used to purchase a vital piece of equipment without sacrificing the working capital you currently have.
The way working capital loans work is straightforward, but it’s important to understand that the foundation of each program stems from a different loan type. If you are looking for funds to improve and maintain your operating capital, you should decide which option lines up with your particular needs.
A short-term loan provides your business with capital in a lump sum and is paid back in 18 months or less. Using this loan type to fund your working capital allows you to manage your cash flow gaps without committing to long-term payments.
A merchant cash advance provides capital in exchange for a percentage of your daily credit card sales until the advance is paid back in full, plus a set factor rate and fees. Using an MCA as your business working capital option gives you quick access to the cash you need when you’re pressed for time.
A working capital line of credit is the option best for businesses who need flexible, renewable funding. With a line of credit, you are given a certain amount of funds and are able to pull from it as needed. Once you have replenished this balance, you can use the funds time and time again.
If your business is struggling with outstanding invoices and maintaining operational expenses, invoice financing could be your solution. Invoice financing provides your business with immediate access to the capital you’re waiting on to put towards essential operating costs.
SBA programs come with low-cost interest rates and terms comparable to a traditional bank loan. If you qualify for an SBA loan, your business can use the funds towards your working capital allowing you to take advantage of growth opportunities or recover from a financial loss.
Qualifying for a small business capital loan is not as hard as you may think. Newer businesses, even startups, can qualify for this kind of loan.
While requirements are unique to each lender, the qualifications are dependent on the type of working capital loan you choose to take on.
If you would like to know if you qualify for a working capital loan, please contact one of our Business Advisors for more information. We’d be happy to provide some guidance towards the best program for your business’s needs.
Online business lenders offer quick and easy working capital loans. Applications are submitted online in minutes and only require basic contact and business information. Most lenders will ask you to provide recent bank statements in addition to your application. These documents will help your lender to determine a loan amount that fits your financial needs and structure.
While each lender wants to help your business get the working capital loan you need, every company’s process is different. Before diving into an application, be sure to do your research and find a lender that offers a wide variety of working capital programs. The more options you have available, the better your chance of finding a loan that’s right for you.
Some other documents you may need are:
Considering working capital can be used in a number of ways, it's up to you to decide where the money should be spent. Here are some general examples of how you can use your future working capital loan:
Emergencies arise when you least expect it. However, you should always be prepared for these situations.
Picture this - a vital piece of equipment breaks down and you’re forced to buy a brand new replacement. You can use your working capital loan to make that purchase and avoid dipping into the money you have set aside for other expenses.
If your business comes across an opportunity for growth, it could require more capital than you have available.
For instance, you may have a large purchase order from a new client and not enough inventory to fulfill it. A working capital loan can fund your expenses and be paid off quickly, once you turn that product around. With a working capital loan, you can keep money set aside for your daily expenses and take advantage of moments like these, all at once.
Seasonal businesses can really benefit from a small business working capital loan. Although busy seasons (like the holidays for retail stores) bring in a lot of revenue, businesses need a lot of capital to prepare beforehand.
On the other hand, some companies endure slow seasons (like a landscaping business during winter) and need help affording expenses like payroll. Whether you’re preparing for a yearly rush or dealing with a slow season, a working capital loan can provide the funds to get you through.
Considering small business working capital loans derive from other loan types, the cost will depend on the program you choose.
If you already have a working capital loan in mind, one of our Business Advisors can help you get a better understanding of what each loan option may cost. You can get in touch with one of our advisors by calling (866)-675-4361 or click here to chat with us directly.
Each one of these programs is unique in its own way. Whether you’re trying to qualify, apply, or learn the cost of each program, your answers will vary.
