Every small business knows how important it is to have sufficient working capital on hand. Working capital is the money a business needs to operate. This is the cash your company has to cover costs, such as buying inventory, paying employees and maintaining your building.
If your capital is spread thin, it may be time to consider a working capital loan. Here are some things to know about getting a small business loan and how it could help your organization grow.
Business Line of Credit – How it Compares
In the world of working capital, there are few options for business owners. Traditionally, those options include a business line of credit or a small business loan. A business line of credit helps a company meet its short-term financial needs.
Unlike a loan, businesses only pay interest on the amount of credit they use, making this a flexible option. Many companies apply for a business line of credit to use at various points in the life of their company.
Secured vs Unsecured Working Capital – How it Works
For those who may have a low credit score a secured loan helps lower the bank’s financial risk. Borrowers need to put up an asset as a collateral for the business loan in order to get approval. An unsecured loan doesn’t have a collateral requirement, which makes it more desireable for small business owners.
To learn more about unsecured loans - Unsecured Business Loans: A More Flexible Choice for Cash Flow
Is Working Capital Like a Business Cash Advance?
Businesses can take advantage of all of the different types of working capital loans, such as a business cash advance. A business cash advance is one type of short-term loan that could work for companies needing a capital injection without going through the lengthy application process that some traditional loans require.
Business cash advances are best if companies plan to pay off their loan right away.
Documentation Needed for Working Capital Loans
The next thing to consider if you are looking into getting a working capital loan is documentation. Depending on the type of loan and your lender’s preferences, there is always some sort of paperwork piece when you apply for a business loan.Ventures that specialize in working capital arrangements may have fewer documentation requirements. At Express, all you need is to fill out the loan application and submit bank statements from the past six months.
Are Working Capital Loans a Good Idea?
So, is it a good idea to incur some debt and get a working capital loan? The reality is that many companies must invest into their organization in order to expand and meet their short-term and long-term goals.
Small business owners have few options if they shy away from borrowing money to help their companies. The key is to choose the right loan product for your company and your situation.
Paying Off Your Loan and Your Options
Your payoff options should also be a factor in influencing your decision about what type of loan you want and which lender you choose.
At Express, there are no pre-payment penalties and you can get discounts for early payoff. The quicker you pay off your loan, the lower your overall cost is for your business.
Advantages and Disadvantages of Loan Capital
Taking out a loan for your working capital needs means you’ll need to weigh the pros and cons. Short-term loan products help owners retain complete control of their company. They also give them the financial resources to reach higher levels of success.
Two Alternate Types of Working Capital Funding
The other top advantage of a working capital loan is the variety of types offered. Some companies use accounts receivable loans that are tied to their invoicing practices.
If your company processes credit card payments, a factoring loan may an option. Reveivable financing along with factoring are a much more expensive solutions for business.
What Working Capital Loans Can Be Used For
No matter what type of working capital loan type you choose, you can use it for almost any kind of business expense. Businesses use loans like this for expanding their physical space, paying their employees, purchasing supplies or meeting large-scale orders.
One of our client's are painting contractors and utilize the working capital funding to start up projects and buy materials. As soon as the project is complete they pay off the loan.
They love our program because they avoid long term debt and high interest costs. By revolving the funding monthly they are able to save a tremendous amount of interest.
Check out the full list on our working capital loan page.
Working Capital Loans Interest Rates
Interest rates are also something business owners should understand before agreeing to a loan product. Ideally, you should aim to partner with a company that offers a competitive, low interest rate that makes the cost of borrowing nominal.
At Express, borrowers can enjoy rates as low as 5.9 percent, depending on the loan product.
Short Term Working Capital
Today, there are more ways for businesses to get short-term capital without jumping through hoops that traditional lenders require.
Express focuses on short-term working capital funding to help small business owners do what is needed for their company’s customers, employees and goals.
With these type of loans, one thing to look at is the term length. Generally, a term is one to nine months. This gives your business the capital it needs for a specific purpose to help boost your cash flow.
Loan amounts are $5,000 up to $150,000 at Express Capital. They are designed for immediate needs, often those related to cash flow.
Get Answers To The Best Type of Loan For Your Business
See how businesses like yours benefit from an injection of cash into your operations and take the steps to grow your business.
If you want to find out more about some of the options for working capital loans, go to our online contact form or give us a call.
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