Are you looking for getting positive working capital, considering a large opportunity that will tie up your cash but also make you more cash in the end, or are truly in need of additional cash to tide you over until your assets are changed to an operational form, you may need to borrow cash.
In these circumstances, a working capital loan might come in handy. These loans are especially used to pay for regular business related operations, which normally consist of rent, utilities, payroll, and inventory while your capital is tied up somewhere else.
Why to Get a Working Capital Loan?
Working capital loans are used for a specific reason – paying for regular business operations – but there are many unique situations in that you might need to borrow cash. Here are the most common reasons businesses take out a working capital loan.
Seasonal Fluctuations in Sales
Seasonal businesses regularly acquire loans to help pay for daily business requirements while the sales are slow. Businesses may acquire loans to pay for working capital requirements before a busy season, such as a holiday, so their capital can be assigned somewhere else. For instance, a retail business might get a working capital loan to pay for additional inventory before the holidays. On the contrary, a seasonal seaside restaurant might acquire a loan to pay expenses throughout the fall.
New Business Speedy Growth
New small businesses regularly have problems making ends meet at the same time as their business is growing. With a working capital loan, you can be sure you usually have sufficient cash to keep every day operations running, as they ought to be. In the meantime, you have the freedom to find new customers, market your business, or do whatever you want to do.
Make the Most Out of an Opportunity
Nothing is worse than passing up on a big opportunity because you do not have the funds. In case you come upon an opportunity that will be remarkable for your business in the end; however, may not payoff for a while, a working capital loan allow you to fill up the gap.
In case your business does not have cash reserves, this type of loan can be used to make certain that you have additional capital in case something unexpected takes place.
Uneven Cash Flow
When customers take a long time to pay invoices, your inventory takes a long time to turn over, or your cash flow is uneven for some other reasons, a working capital loan can be used to strengthen your cash flow so you always have cash when you actually need it.
Types of Working Capital Loans
Working capital loans are available in many different types. Working capital loan is an appropriate loan for you will depend upon your business assets and your financial situation.
Listed here are some common types of working capital loans that can fulfill your small business needs:
Business Lines of Credit
Business lines of credit are an excellent funding option for working capital requirements in case you do not realize how much capital you actually require, or if you occasionally require cash to capitalize on unexpected opportunities. Business lines of credit have a two-fold appeal. Primarily, once you apply for and secure a credit line, you could get access to the capital whenever needed—no application required. Secondly, you only need to pay interest on the cash that you borrow; there is no need that allows you to pay interest or charges on capital that you using.
Short Term Business Financing
Loans with repayment terms of two years are short-term loans and are excellent for working capital requirements due to the fact that they are repaid in a short amount of time. Working capital requirements are short term, so that you do not actually need to be trapped making payments on a loan you do not need anymore.
Additionally, short-term funding is extensively less complicated to acquire as compared to long-term loans. Most businesses are qualified for short-term financing, even though they have not been in operation for very long or have lousy credit.
You cannot usually get your clients to pay your invoices on time, but that does not imply you cannot use those invoices to acquire cash.
While you enter into an invoice factoring agreement, the lender purchases your unpaid invoices in exchange for advance capital. You will need to pay a little cash for the service; however, many businesses feel it is good to have a stable cash flow and working capital when required.