4 Reasons a Working Capital Loan is a Good Choice for Your Business

Jun 02, 2021

No matter how successful your business, you're likely to face a time when you could use some extra cash flow. When an exciting opportunity or liquidity shortage arises, a working capital loan can be a game-changer.

Working capital loans allow you to infuse your business with immediate, short-term cash without pulling from your personal assets. When you're no longer worried about covering your cash needs, you can focus on growing your business.

Here are four reasons you should consider adding a working capital loan to your business plan.

1. Extra Cash to Cover Day-to-Day Costs

Seasonal businesses often suffer from cash-flow shortages during the slow months. Business liquidity can also suffer when customers don't pay as quickly as you had hoped. These inconveniences can quickly turn into a crisis if you don't have the funds to cover day-to-day operating expenses like your power bill or payroll.

A working capital loan can give you the extra cash you need to get through the hard times. Having a chunk of cash available when you need it can give you a head-start and help ensure continued business success.

2. Take Advantage of Opportunities

A savvy business person knows how important it is to be prepared to take advantage of once-in-a-lifetime opportunities. If you don't have the cash available when an opportunity arises, you could miss out. A working capital loan can come in handy in situations like:

  • Taking advantage of vendor discounts
  • Increasing inventory for holidays or special events
  • Purchase materials for jobs
  • Updating your product line
  • Increasing marketing efforts
  • Redesigning or relocating your office.

Before taking a loan to cover the cost of a new opportunity, be sure to perform a thorough analysis. Make sure you'll be able to repay your loan, cover any additional expenses, and still make a profit.

3. Hire New Employees

When you first start your business, it may be okay for you to wear many different hats. However, at some point, the advantages of hiring a new employee far outweigh the extra cost. Unfortunately, many business owners wait too long to make the necessary hiring decisions due to a lack of capital.

When you hire a new employee, you have a responsibility to ensure that you will be able to meet the financial commitments you've made to that person. It can be a frightening decision, but failing to hire employees when you need them can result in a serious detriment to your business. A working capital loan allows you to make this investment without creating undue stress.

4. Upgrade or Replace Equipment

An equipment or technology upgrade can significantly impact business operations. Putting off needed repairs can result in a catastrophic failure. Make sure you keep your competitive edge by purchasing upgrades with a working capital loan.

Equipment purchases made before the end of your tax year can create additional advantages in the form of tax deductions. Funding these purchases with a loan allows you to make purchases at the most appropriate time for your individual needs.

How to Choose a Working Capital Loan

There are many lenders willing to give qualified business owners a working capital loan. As a business owner, you need to be aware of your loan options and ask the right questions to ensure you get the best possible loan for your circumstances. Here are some of the most important questions to ask.

How Much Is the Broker Fee?

If you're working with a direct lender, you may be able to avoid this additional cost.

How Long Does the Approval Process Take?

When you need a short-term loan, you don't have time to wait around. Look for a lender with an easy application process and fast approval turn-around time.

Do I Have to Secure My Loan with Collateral?

Working capital loans are typically unsecured, meaning that you don't have to back them with assets. This is ideal for the small business owner.

How Do I Repay My Loan?

Don't get bogged down with a complex repayment process. Find out how often you're expected to make your payments.

Are There Any Prepayment Penalties?

If your investment pays off and profits increase, you'll want to pay off your outstanding debt. This is why you should always try to choose a loan without prepayment penalties.

Do You Offer a Line of Credit?

A line of credit is different from a traditional loan because it allows you to draw funds as you need them. This is an advantage because it means you only have to pay interest on the cash you're actually using.

Can I Customize My Loan?

Your business is unique, and so are your capital funding needs. You may only need the money for a couple of weeks, or have a project in the works that requires longer-term funding. Make sure your lender is willing to work with you to design the loan you need.

What if I Need Additional Funding?

If you regularly make your payments early, your lender should be happy to renew your loan. In many cases, you may be able to undergo a loan reconstruction to access additional capital.

Is the Lender Reputable?

Check the Better Business Bureau (BBB) rating of the lender you are considering. An A+ rating is ideal. Also, read online reviews and check social media sites for customer comments.

Does Your Business Need a Working Capital Loan?

At Express Capital Funding, we understand how important it is to meet your short-term cash flow needs without a lot of hassle. That's why we make it easy to apply online and are committed to a fast approval process. Once you're approved, we'll deposit the same day.

If you've been thinking about a working capital loan, don't wait any longer. We're here to provide you with the funds you need to take your business to the next level. If you're still not sure, contact us so we can answer your questions and help you get started.

Recommended Resources

7 Ways to Use a Working Capital Loan for a Small Business

 How to Qualify for Working Capital Business Loans

What You Should Know About Working Capital Loans



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