The most common business challenge today is paying operating expenses. As a business owner, you know working capital is the money that a business needs, right now, to cover all of its short-term expenses and continue to operate. If traditional banks won’t approve you for a term loan , small businesses often turn to working capital loans.
If you’re looking to obtain immediate business funding to help cover expenses and endure financial hardship, a working capital loan may be exactly what you need to continue operations and meet your business goals. Small business working capital loans get you funded quickly and can cover Items such as payroll, debt, utility bills, rent, vendor payments, and more.
Without the cash flow you need to cover everyday expenses, your business could be in jeopardy. However, you have options when it comes to working capital funding.
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A working capital loan is a flexible loan option that provides cash quickly to small businesses that need to cover their short-term expenses. Working capital loans are often used by companies that are seasonal or work in cycles.
Quickly getting the funds you need is one of the top priorities for entrepreneurs. While banks sometimes offer working capital finance, alternative financing options can provide less stringent requirements to get approved.
When it comes to working capital loans, the business loan terms are a bit different from traditional term loans. Since working capital funding is a short term solution for businesses who need immediate funding, working capital terms are often a few months to a year.
A working capital loan is easier to obtain than you may think. Here are just some of the reasons why many business owners are using working capital funding to help them stay afloat:
A term loan is a long-term loan that is used to finance business growth opportunities or the purchase of assets. A working capital loan, on the other hand, is typically repaid within a few months and is used to finance everyday operational expenses.
Another key difference between the two is the amount of paperwork needed for the application and approval process. A working capital loan is quick and does not require a lot of paperwork so long as the business has a good credit history. But overall, business working capital loans require much less documentation than a traditional term loan. Working capital terms include higher interest rates than term loans. However, since they are often paid in two or three installments, they can be much less when compared to the amount of interest paid over the life of a long-term loan.
There are three popular kinds of working capital loans to become familiar with:
Accounts receivable loans - Like the name implies, this type of business working capital loan uses the business’s accounts receivable to pay off the loan. The business is given a lump sum of cash, and as invoices and other account receivable items are paid by customers, the financial provider will collect the balances. The working capital loan provider uses those funds to pay the borrower’s fees and returns any extra to the business as a second payment.
Business line of credit - A business line of credit is one of the most flexible working capital funding options out there. The business receives a lump sum of cash upfront and can use as much or as little (up to the set limit) and only pays interest and fees on the amount used. Businesses can tap into this line of credit as many times as they want, so long as they pay off the amount in full before accessing the line of credit again.
Merchant cash advances - Similar to account receivable loans, a merchant cash advance uses future revenue to pay off the balance. In this case, a percentage of future credit and debit card sales is used to pay back the loan amount.
Working CapitalTransportation Company
Merchant Cash AdvanceBar Restaurant
Line of CreditPPE Wholesale
Which type of working capital finance you utilize is up to you and what best suits your business. Each small business is unique and consulting with an experienced provider is the best way to receive guidance on the loan application and deciding which route to small business working capital loans best suits your needs.
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If you’re interested in obtaining working capital for your small business, fill out our online application in as little as 5 minutes or reach out about which working capital loan option is right for you.