Best working capital business loans 2018
Working capital is an important aspect in ensuring the smooth running of a business. It is the money used to make payrolls, purchase inventory, business expansion, and bill consolidation among other important uses. Most business owners use cash-in-hand to cater for these expenses, but a small business working capital loan can also help increase your cash flow. The loans, however, should not be used for long-term investments like purchase of major equipment or business expansion.
You can easily get working capital business loans at affordable rates in traditional financial institutions, but if the bank turns you down and you need immediate cash to cover a cash flow gap, alternative or online lenders can be a good solution. With alternative lenders, you can access a working capital loan in as soon as one business day, and there are also lenders who provide small business capital loans at affordable rates to businesses with good credit reputation.
When should you consider a working capital loan?
Most small business loans are used for business growth and investment, but working capital loans are mainly used to cater for day to day expenses. These expenses may include invoices, payrolls, rent, and any other things that ensure a smooth running of the business. Here are some of the ways in which working capital loans are used:
- Handle downtime
Both startup and already established businesses experience downtime at some point. For instance, you may make huge sales at a certain point of the year. As much as this is good for the business, you also need cash to purchase more stock for the other part of the year.
- Growth and expansion
Every business owner’s dream is to see their investment grow to another level. With a working capital loan, you can see your business dream come true sooner than you expected.
- Emergency expenses
Emergencies are always experienced in business, no matter how well you are prepared for them. But if major equipment fails and you are short of cash, you may risk losing on profits. With working capital business loans, you can easily handle such situations whenever they arise.
- Peace of mind
If you do not have enough working capital, your main thoughts will be on how to get cash to pay for business expenses. At this point, anything that goes wrong can lead to serious financial damage. A working capital loan can give you peace of mind in such situations.
Types of working capital loans
Working capital can easily be increased by generating more revenue. But this does not happen for every business, which forces them to consider other financial options. This includes taking out a working capital loan. Lenders offer different types of working capital loans depending on the business needs. These include:
- Short-term loans
A short-term loan is a common type of working capital loans. Lenders provide a lump sum that needs to be paid within a short period of time. Most lenders provide short-term loans with a payment term of up to 18 months.
- Lines of credit
This is also a flexible option for business owners. A line of credit can be used when you have negative working capital. After the loan is approved, you are provided with funds that can be withdrawn whenever the need arises.
- Merchant cash advances
With merchant cash advances, you are provided with a lump sum amount that requires to be paid with a percentage of your daily credit card receipts. This is an easy way to get working capital for your business, but it can also be expensive, which is important that you first consider your option before taking out the loan.
- SBA loans
SBA loans can also be used for working capital. The loans are offered between $5,000 and $5M and can be used for different purposes. The only downside is that it takes longer for the funds to be approved. The lender may also require collateral and personal guarantees before advancing the loan.
- Invoice financing
If you need immediate cash to cover a cash flow gap, invoice financing is the best solution of all times. This is especially when customers take longer to pay and you need cash to pay for immediate business expenses. Invoice financing companies provide cash to businesses at a fee and then collect the invoices from customers.
5 best working capital loans in 2018
Now that you already know how working capital loans work and some of the options available, here are some of the best working capital loans that you can consider for your business.
- LoanBuider PayPal services
With this financing option, you can access a working capital loan for amounts between $10,000 and $500,000. These loans are provided in lump sum that require weekly payments and have a loan term ranging from 3 months to one year.
Kabbage is also a great option for working capital business loans. What makes them stand out from other lenders is that they use different factors to determine your creditworthiness rather than solely relying on your credit score. This makes the loan accessible for both established and startup businesses. Businesses can borrow amounts ranging from $2,000-$100,000 with a repayment term of up to 6 months. A fee of 1%-12% is charged for the first 2 months after which you will be charged a 1% fee for the next 4 months.
OnDeck provides different loan options for small business owners. These include lines of credit, term loans and working capital loans. All the loans are provided online and the amount ranges from $5,000 to $250,000. The money can be sent to your bank account in as soon as 24 hours. The fee charged depends on your cash flow situation, business credit rating and whether you have a previous loan with OnDeck. They can be a good solution for startup businesses that generate low revenue.
BlueVine also offers working capital loans at affordable interest rates. They provide two types of working capital loans-invoice financing and business line of credit. Invoice factoring amounts range from $20,000-$5M with an APR of 15%-68%. The loan terms depend on the financing option you choose, but either way, both are a solid way to access a working capital loan for your business.
FundBox provides invoice factoring option for a business that is still waiting for customers to pay. The lender factors invoices for amounts between $1,000 and $100,000 which is repaid once the customer pays. Businesses with poor credit are also eligible to apply.
Is a working capital loan right for your business?
A working capital loan is one of the best ways to manage a profitable business. Most working capital loans are unsecured debts, which mean that they don’t require any collateral. They can come in handy for businesses that have just started out and do not have enough assets to act as security for a loan.
Benefits of working capital loans
- Your business is prepared to handle any arising challenges
Every smart business owner should be prepared to handle any financial challenges whenever they arise. Even business that have been in operation for years are considered bankrupt if they can’t pay for their monthly expenses. Poor working capital leads to increased borrowing and creditors being paid late, and all these can also reduce your credit rating. With a low credit score, you can be charged a high rate of interest when taking out a business loan in future. All these problems can easily be solved by taking out a working capital loan.
- Maintain business ownership
By receiving funding from an equity investor, you may have to give up a portion of your business in return. This will also have an impact on your decision making power. But with a working capital loan, you can easily manage the business without any interference.
- No collateral requirements
Since working capital loans are unsecured in nature, you won’t worry about putting your business assets at risk when applying for the loan. But it is also important that you pay the loan back to avoid the costs of defaulting.
- Ideal for short-term problems
Working capital loans are meant for short-term use. When you borrow the money, you won’t have to worry about repaying the debt for years.
- Can be used for different purposes
With working capital loans, there are no restrictions on how the money should be used. Whether you want to make an investment or pay for daily expenses, you can easily find a lender who is willing to advance the cash to your business.
There are many ways to ensure that your business runs smoothly, and among them is getting a business capital loan. As much as you can maintain a steady cash flow if you generate more revenue, there are also times when you will need assistance to get capital for day-to-day business operations. Whether you have issues with inconsistent cash flow or you just want to expand your business, there are many financing options available for your business. It is, however, important to research different lenders and only work with the one that offers working capital loans with affordable rates and flexible repayment terms.