Everything You Need To Know About Working Capital Loans

You’re faced with a new opportunity and need flexible short-term funding right now. What do you do?

Most business owners head on down to their local bank or credit union and apply for a loan. Then what happens? Sometimes, if the business has a solid credit history and is asking for a large enough loan that the bank can make a profit, it may be approved. But what if the loan isn’t approved? What then?

A non-traditional working capital loan could be the solution you’ve been looking for but didn’t know about… until now!

This type of loan can be used for various businesses expenses such as marketing, purchasing inventory, payroll, or taxes just to name a few. Flexible and creative financing solutions are available, with competitive rates, to stabilize cash flow, drive growth, and increase profits.

 The bottom line is that you don’t have to turn down opportunities just because you can’t get a traditional loan. Read on to find out why this type of financing works…

What Exactly is Working Capital Loan?

Working capital is the cash available to finance a company's short-term operational needs. In accounting terms, working capital is equal to current assets minus current liabilities. Put simply working capital is what your customers owe you plus your inventory and cash minus what you owe your suppliers and employees.

Often keeping adequate cash on available to cover daily operational expenses can be a struggle for small businesses. Not have stable or predictable revenue throughout the year is common in many industries and trades. This specialized type of loan is not intended for purchasing assets (i.e. equipment), but rather for use in daily operations; it’s cash on hand.

Working capital loans are widely used across many industries. We specialize in working with:

• Restaurants
• Drywall contractors
• Tree removal
• HVAC
• Landscaping

When Would My Business Need This Type of Loan?

Growing companies require cash; get tied up in the day to day operations of the business. Business owners may try to bridge the gap in cash on hand and cash needed by using their personal resources. While this may seem like a good solution on the surface, it would be better to take a working capital loan to meet these daily expenses like payroll.

Perhaps you anticipate an upcoming slow period, an extra influx of cash to cover payroll or existing obligations. Alternately, you could be preparing for an upcoming busy season and need more cash on hand to take advantage of vendor discounts or other limited opportunities. This type of short-term loan can be used to cover unexpected increases due to changes in the economy, staffing, marketing needs, or relocation.

Should You Be Thinking About Using This Type of  Loan?

While it vital to have working capital on hand to cover payroll, marketing costs, and other operating expenses, taking any type of loan should be carefully considered. Since this type of loan is available quickly and with little hassle, it may be tempting to over-borrow or take the first option you see, rather than carefully considering your options.

Potential Benefits of Taking a Working Capital Loan

The obvious benefit of a working capital loan is that funds are available quickly; this type of loan can be approved in as little as 24 hours. This means business owners can cover unexpected gaps in working capital expenditures. Debt financing does not require an equity transaction, so you maintain full control of your company even when need for funds is urgent. 

Some working capital loans are unsecured. In this case, a company is not required to offer collateral to secure the loan. Only companies or business owners with a high credit rating are eligible for an unsecured loan. Businesses with little to no credit may need a secured loan with some collateral.

Other Pros: You are prepared to handle financial difficulties that may arise. You maintain ownership and control of your company. There is often no collateral required. Short terms are available for short-term situations. The money can be used as you see fit with very few restrictions. These loans are quick. 

Potential Drawbacks of Using a Working Capital Loan

You will need to repay it, that should go without saying, but it is a commitment. Some collateral may be required. When unsecured, the interest rates could be higher to compensate for the risk the lender is assuming. Working capital loans are often tied to a business owner’s personal credit which means missed payments can hurt your credit score.

Other Cons: The terms are short (this is both a benefit and a disadvantage.) 

Ready to Find Out What a Working Capital Loan Can Do for Your Business?

If you are in a solid financial position and in need of a quick boost to make a necessary change, like hiring extra staff for expansion, then a working capital loan can be one of the easiest and best ways to grow and scale your operation. You can solidify your credit, build your reputation with vendors, and take advantage of once-in-a-lifetime opportunities. Repayment plans that allow you to maintain control of your business make this a great alternative to a traditional loan. If you’ve been feeling stuck and looking for a solution to help you level up, this could be your answer.

Have questions about how a working capital loan could work for your business? Call us at (817) 479-3602 or schedule a call at https://www.bentwoodfinancial.com/contact

*The content of this page is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service, nor to offer any tax, legal, or financial advice. Be sure to consult your own accountant or tax advisor regarding the tax consequences of your leasing and financing transactions.*