Small Business Working Capital Loan

Finding the best small business working capital loans 2018

Small Business Working Capital Loan

One of the ways to operate a healthy business is ensuring that it has sufficient working capital. Without it, employees may not be paid on time, suppliers will be complaining and you may even not be able to purchase more stock. But at times, the business may not have enough cash in hand to cover for daily expenses. In this case, taking out a working capital loan can be handy. These are short-term business loans that are used to pay for daily business expenses. The loans are designed to finance everyday business operations and not for long-term investments. When correctly used, small business working capital loans can play a very important role in achieving business success. One benefit of small business working capital loans is that they are very accessible. Most of these loans are also unsecured in nature, which means that you don’t have to risk any of your business assets as collateral for the loan.

Why a working capital loan is important to your business

Unlike business loans that are mainly used for long-term investments, small business loans are generally used for running costs. This includes payment of employees, rent, and invoices among other short-term business needs. Working capital is calculated as current assets less current liabilities. This is the amount left after you calculate the amount of money you have made less whatever you need to spend.

Uses of working capital loans

Your business will be better off if it has positive working capital. The loans can be used for different purposes which includes;

  • To handle downtime
    Most businesses, especially seasonal ones experience downtime at some point. For instance, you may make huge sales at a certain period of the month and lack enough funds to run the business for the remaining part of the year.
  • Growth and expansion
    Every business owner’s dream is to see their business grow to the next level. With sufficient working capital, you can achieve this faster. On the contrary, negative working capital can be a great hindrance to achieving business growth.
  • When an emergency arises
    Most people prepare themselves for emergencies by saving for the same, and the same should apply to businesses. But if you do not have enough cash to cover business emergencies, you may risk losing some of your clients. Worst still, you may be hit with a lawsuit and this can greatly affect your financial situation. Applying for working capital business loans can help solve the situation before things get out of hand.
  • Peace of mind
    If you do not have sufficient working capital, you may panic if something goes wrong. You can have peace of mind by considering a working capital business loan.

Types of working capital loans

One of the ways to ensure that you have enough working capital is generating more revenue. But this may not happen for every business. The alternative option is to take out a small business capital loan. There are different types of small business working capital loans depending on your needs. These include;

  • Working capital lines of credit
    This is a flexible option for many small business owners. The lines of credit can especially be helpful when your working capital goes negative. Once approved, you will be given a lump sum amount that you can withdraw from when the need arises.
  • Merchant cash advance
    Merchant cash advances are easy to qualify for. Businesses are provided with an amount of money that is paid with a percentage of daily credit cards transactions. But as much as it is an easy way to get short-term financing, the loan can be quite expensive.
  • SBA loans
    What makes SBA loans attractive is their low interest rates and flexible repayment terms. Businesses can get funding between $5,000 and $500,000 which can be used for working capital among other purposes.
  • Invoice financing
    Invoice financing, also referred to as invoice factoring is a financing option whereby businesses can receive short-term funding in exchange for their unpaid customers’ invoices. The loan can especially be useful when you do not have enough cash flow due to slow paying clients. The factoring company first provides an advance rate of up to 90% of the value of the invoices. Once the customers pay, the remaining amount, minus a factoring fee is forwarded.

Things to consider before taking a working capital loan

Business capital loans are used to fill cash flow gaps. If you run a seasonal business, you may consider a working capital loan to sustain the business during low seasons. In high seasons, you may also want to prepare by having enough stock or hire enough employees. You can also apply for the loan when you need to grow and expand the business.

Whether you consider an online lender or traditional financial institution for a working capital loan, it depends on your business needs and what you need to qualify. If you decide to work with an online lender, you can have the funds in your bank account within a few business days after approval, and you won’t have to pay the loan for years. Some lenders have repayment options that can enable you to repay the funds in a few months and be debt free again. The loans can also be used for different purposes. But this also comes at a cost. Since the loans are easily accessible and the funding time is also short, they tend to attract a high APR. Banks provide working capital loans with higher amounts and low rates of interest, and this can work well for established businesses. But the problem is that banks have strict requirements to qualify for the loan. The application process also takes time, which means that you can receive the funds after several weeks. Whatever option you choose, working capital loans can be very important in ensuring a smooth running of the business. Just ensure that you compare different quotations to get an affordable loan with flexible repayment terms.

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