Working Capital Loan
Working capital is the available capital your business has to cover routine operational expenses. The amount of working capital your business has is a good indicator of both its efficiency and financial performance. Any business must have enough cash on hand to cover inventory purchases, payroll, bills, and a range of other expenses associated with operating a business. Your enterprise should ensure there is always enough working capital to promote growth and efficient business practices — many businesses do this through small business loans. This can be problematic for small businesses as many do not have extensive credit or revenue histories. Many traditional lenders will want collateral if certain documentation requirements cannot be met. This may mean you have to put up your home as a guarantee against the money you are borrowing, which can be extremely risky for your family.
Our working capital loans help you cover daily operational expenses if you find yourself short of cash flow. This can help you cover ongoing costs and invest further in the efficiency of your business even if your revenue stream has slowed.
Examples of Working Capital Loans
There are many different types of loans that provide business owners with working capital — below are some of the different funding options on the market:
- Short-term loan: Most short-term loans are secured with collateral, although if you’ve been using the same lender for years you may be able to get one without collateral. It is a basic loan that is normally paid back over a fixed payment period with predetermined interest.
- Account overdraft or credit line: Some banks will allow you to overdraw your account if you agree to pay interest on the amount overdrawn. This can be up to 2% above an institution’s normal interest rate.
- Personal funding/Investor funding: This is a type of equity funding that can be done with you or your family’s personal resources. This can be a good way to secure funding with limited credit history.
- Factoring Loan: This isn’t a loan by definition as the borrower does not actually incur debt. Instead, a lender will purchase the right to a portion of future credit card transactions in exchange for upfront capital. These loans can have extremely high interest rates and should only be undertaken under proper consideration.
- Accounts Receivable Loan: Again, this isn’t a loan by definition. The lender actually purchases invoices from your business by paying for them upfront. They then take a portion of the final collected invoice as a fee. This can be beneficial to individuals who have clients who are reliable but often take time to pay their invoices.
- Trade Creditor: A supplier can offer a trade credit opportunity if you have an established order history with them.
How your Working Capital Is Determined
A working capital loan is able to be acquired from any credit union, bank, or lender. It doesn’t require collateral, however, it is determined by the amount of working capital a business has. To determine how much working capital your business has, you will need to compare your business income as well as inventory or assets that can be liquidated against any liabilities such as wages, accounts payable, and other company debt. A working capital loan is typically paid back within a year and is considered as short-term funding. With a better understanding of how a working capital loan works, you can determine whether or not it is the best possible choice for your business needs.
Should I Get a Working Capital Loan?
Accessing a working capital loan can be one of the best ways to promote growth and stability in your business. They’re great for businesses who are currently in the development stage of their business cycle. Online lenders available through Business Line of Credit Hub can help you avoid the headache of applying for financing. Clients get ongoing capital to help fund the operational costs of their businesses. You can apply today through our streamlined online portal!
The Advantages of a Working Capital Loan:
A working capital loan can provide you with the much-needed funds your business requires for short- term funding to cover daily expenses. Running a business requires a lot of capital and a working capital loan can provide exactly that.
No Collateral Needed – One of the primary advantages of a working capital loan is that there is no upfront collateral required. This can take a lot of the stress out of the process of obtaining financing. These types of loans can make a great solution for businesses that are on the newer side and are not established and don’t have a consistent cash flow.
Reinforced Against Challenges – Another benefit of obtaining a working capital loan is that the business is fully reinforced against any challenges that may arise. Without the right savings in place, your business may be in trouble when you encounter certain financial emergencies. Having a working capital loan in place can provide the peace of mind and financial security you need.
Maintain Full Business Ownership – Since a working capital loan is considered unsecured, you don’t have to back up the loan with an asset. This means you can maintain full ownership of your business while having peace of mind. Putting up collateral or part ownership of your business can be very risky and this can create further financial challenges later on down the road. That is why a working capital loan can help protect your assets while still getting the funding that you need.
Flexible Use of The Funds – With a working capital loan, you have a flexible way to use the funds which makes it easier to spend the capital on what matters most in your business. Unlike other business loans that stipulate the way in which the funds must be spent, a working capital loan will provide you with the resources to cover critical expenses while supporting the main infrastructure of your business with the vital funds your enterprise needs.
Bad Credit is Okay – Many working capital lenders make concessions for those with bad credit. If you have less than stellar credit and you’re trying to get a loan, don’t let that stop you from applying. This is one of the main benefits of applying for a working capital loan.
An Alternative to a Working Capital Loan
Although a working capital loan has many different benefits, there are alternatives to be aware of. It is helpful to find out what other options your business can take advantage of to get the cash you need on hand. One of these options is a business line of credit. A business line of credit provides access to immediate capital that can be used to cover short-term expenses. The line of credit typically ranges from $50,000 to $150,000 depending on several factors related to your business. Some of the factors that will be considered by lenders when extending a business line of credit to you include the length of time you have been in business, the amount of revenue your business has been earning, and other related factors.
What is a Business Line of Credit?
A business line of credit can be thought of as a hybrid between a credit card and a loan. However, unlike a traditional loan, there are no set repayment amount that needs to be sent in on a monthly basis. Instead, businesses can withdraw and repay the funds as they need them without exceeding the credit limit on the business line of credit. A standard term loan such as a working capital loan pays one lump sum payment upfront while a business line of credit functions differently. It allows the business owner to tap only the amount of funds they need. Additionally, they only pay interest on the portion of the funds that they actually use.
Why Choose a Business Line of Credit?
As you strive to make the best decision in relation to the type of funding your business needs, you may be wondering whether or not to choose a business line of credit or a working capital loan. There are many reasons to consider either option as they both have similarities.
No collateral needed – Similarly to a working capital loan, a business line of credit doesn’t require collateral. This makes it much simpler to get the funding that is needed for your business without having to risk any assets in the process. Putting up a home, car, or other personal possession can have its own inherent risk so a loan that doesn’t mandate this is always more desirable.
Affordable interest rates – A business line of credit is well known for having low, affordable interest rates. This makes repaying the loan a much easier and more simplified process.
Great for immediate cash on hand – A business line of credit offers immediate access to cash on hand which provides help with a variety of short-term funding needs. Just like a working capital loan, you can spend the funds in any way you need to except for real estate purchases. However, you can buy inventory, meet payroll expenses, and purchase supplies and materials for your business.
Similarly to a small business loan, an unsecured line of credit can give a business access to funds that can cover their expansion and operational costs. Some of the facts to be aware of with an unsecured business line of credit is that the line of credit acts like a revolving loan. Additionally, there are fees associated with this type of funding so it is helpful to read the fine print and explore all of your options prior to making the best decision.
Short-Term Funding Solutions
Both working capital loans and small business line of credit loans provide great short-term funding solutions. It is essential to find the right funding source that can help your small business meet its funding needs. When making a decision for a funding source, comparing interest rates, considering loan terms including fees, and repayment terms can help a business owner choose the type of funding that is the perfect match to their requirements.
Short term loans encompass a variety of different business needs. Some of the business needs your loan can cover include rent and leasing costs, utility payments, emergency repairs, inventory purchases, and more. If your business needs to make a purchase because of a discount that is available, then working capital loans or a business line of credit can make this a possibility. Short term funding is so important because it can make a difference between a company going out of business or being able to meet their day to day expenses.
How Can Business Line of Credit Hub Help?
Business Line of Credit Hub is the leading provider of quality services connecting the industry’s best lenders with the individuals that need their help. By providing a wide range of resources and information, we seek to inform the business owner about which types of loans are available for them to choose from. In addition, through our online portal, we are able to offer business owners an opportunity to apply directly through our website for the funding they need. Our lenders can provide access to business lines of credit up to $150,000. When you need access to funding to propel your business to the next level of success, you can depend on us to provide the right solutions.
Flexible Lending Terms
We offer access to lenders that can approve your application even if your business hasn’t been in operation for a very long time. In addition, our lenders can extend financing to companies that don’t have established credit or that may have less than perfect credit. If you have allowed these factors to hinder you in the past, we can provide the funding you need without the hassle. Browse our website for more information about the various types of loans and funding options that are available to your business. Then, take the time to fill out our short application form to find out which type of loan your business qualifies for.
Learn More About Specific Loans for Your Business
Unsecured Small Business Loans
Secured Small Business Loans