Working capital business loans are an invaluable form of financing for many small companies. Almost half of new start-ups fail due to lack of capital so this type of business financing can be a lifeline in the early stages. But established businesses experience peaks and troughs in working capital too, so short term loans can be an ideal solution. In this article, we look at working capital business loans in more detail so that you can decide if they are useful for your venture.
What Are Working Capital Business Loans?
Working capital business loans are a type of funding that’s used to cover the difference between your assets and liabilities. Your assets are things like the amount of cash in your business checking account, stock that’s held as inventory, outstanding accounts receivable invoices, or a commercial building that your business owns. These are things that tie up your money but could be exchanged for cash in the near future. Liabilities are the complete opposite of assets. These are business expenses that will need to be paid in the coming year such as accounts payable, rent, and loans.
It’s common for businesses to have more liabilities than assets at certain times of the year. Many industries operate in cycles which means there are natural fluctuations – sometimes assets outweigh liabilities and other times the opposite is true. Most businesses aren’t perfectly balanced all year round, clients and revenue can come in peaks and troughs. In these cases, working capital business loans are an ideal solution. They help many types of small business owners ride out cash flow issues until their assets are freed up and things are rebalanced.
What Can They Be Used For?
Working capital business loans can be used for a wide variety of purposes. Some companies use them to fund day-to-day operations whereas others borrow for a specific business need. Here are some of the most common uses for these types of small business loans.
Weathering Seasonal Fluctuations
If you run a seasonal business, then working capital business loans can help you to weather income fluctuations. Perhaps the bulk of your revenue is generated in a few months of the year but you need cash to pay rent on a monthly basis. Or you want to place a large stock order in advance of the busy season but need funds to pay for it until its resold. In these cases, a short-term loan (or business line of credit) can ensure that you get the capital you need at the right time.
Working capital financing can also be used to cover operational costs on an everyday basis. You can use the funds to pay rent, accounts payable, or payroll and keep things ticking over smoothly. This enables you to focus on other aspects of the business such as new business development or product improvements.
Expansion and Growth
Many businesses use working capital loans to fund their growth and expansion. The funds can be used to take advantage of opportunities as they arise or implement a structured growth plan. Although large financial institutions are slow to process and approve applications, online lenders can give you an immediate answer and transfer the funds within a few business days. This enables you to react quickly when you’re presented with profitable opportunities.
New or Replacement Equipment
Equipment financing is essential to most businesses these days. Whether it’s computers, vehicles, or large-scale manufacturing machines, every company has its tools of the trade. When these break or become outdated, it can hold a business back from generating the revenue it should be. Working capital business loans enable you to update or replace equipment as needed so that your business operations don’t miss a beat.
Marketing and New Business Development
Business loans can also be used to invest in marketing that attracts more customers. You can pay for advertising, a redesign of your website, or a trade show booth to entice new clients. Spending money on marketing is a proven way to generate more income and increase your assets over time. If your annual revenue isn’t in line with expectations, then promotions can give it the boost it needs.
Stock and Inventory Purchases
A short-term loan (or merchant cash advance) can also be used to purchase stock and increase inventory. Not all businesses have the money to buy products up-front but they know that they can sell them on at a profit. As you move stock, the income can be used to cover monthly payments so that you’re paying down the loan as you go. This can also be helpful for purchasing discounted stock and taking advantage of special offers from suppliers.
Unexpected Costs and Emergencies
Financial emergencies can be a daunting prospect for many business owners. Not knowing how you’ll pay for an unexpected expense is a stressful experience but working capital business loans can help. They allow you to prepare for the unforeseen ahead of time so that you can be confident you have the finances to deal with anything.
Choosing the Right Working Capital for Your Needs
Working capital business loans offer numerous benefits to companies, both large and small. They can be used to support a wide range of activities as we’ve already discussed above. But it’s important to choose the right one for your needs when faced with a wealth of options. The borrowing amount, repayment terms, and application process should all factor into your decision. Here are some aspects to consider when selecting the best working capital loan for your business.
How quickly can you get access to the funds? Traditional institutions often take several weeks to make a decision which may not be a fast enough funding time to meet your needs. At Strategic Capital, we usually give approvals within hours and transfer the funds within days. This makes us a smart option when
How easy is the application and funding process? Some lenders have long application forms and require a lot of supporting paperwork before they’ll even consider you. Others (like us) leverage digital technology to streamline the application process which makes it a lot quicker and simpler. Instead of a daunting prospect that’s filled with bumps and headaches along the way, our application process is a breeze.
Cost of Funding
How much will the loan cost your business over the long-term? It’s important to calculate the total amount that you’ll repay, including interest rates and any fees. This enables you to decide if borrowing will generate a return and is worth the costs involved. We offer some of the lowest rates in the industry, in combination with fast approvals and high-quality customer service.
How does the lender treat its customers? Some banks base their decisions on strict criteria, taking a black and white approach to approvals. They only consider business owners with perfect credit scores and well-established trading histories. But we like to look beyond these details at the business as a whole. This enables us to identify potential where others don’t and means customers benefit from more flexible approval requirements.
By considering these aspects, you’ll be able to identify which loan is the best option for your business. Deciding your criteria ahead of time will help you get a deal that’s competitive and meets your unique funding requirements. But it’s important to note that working capital business loans aren’t a solution to long-term business problems. They can give you time to make improvements or wait for assets to become available as cash. However, they won’t compensate if you have a poor business model or an ineffective strategy. So, it’s important to plan for how you’ll use the money to generate a return and then borrow an amount that can be realistically repaid.
Working capital business loans are ideal for companies that experience cycles of fluctuations. If you have more liabilities than assets, then they can even out the balance until there’s more cash available. Use them to pay for operating costs, growth and expansion, repairing or upgrading equipment, marketing to new customers, purchasing stock, or preparing for emergencies. They’ll give you the capital you need to successfully grow your business and focus on the important things.
Working Capital Business Loans From Strategic Capital
Strategic Capital provides business finance to a wide range of organizations across the USA. Whether it’s to pay for your everyday costs, emergency repairs to equipment, or investing in expansion, we offer small business finance solutions without the hassle of traditional banks. Best of all, you’ll benefit from competitive terms and a simple application process, so you’ll soon have more money to reinvest into your business.
Transparency, innovation, and expertise are the driving factors behind everything we do. With a talented team of advisors, a plethora of funding partners, and the best technology available – we go above and beyond to help our clients receive their capital rapidly with the industry’s most competitive repayment options and interest rates. We want to break speed records, not bank accounts. Upon submitting your application, it’s reviewed by a dedicated Capital Advisor. We generate the best rates and terms at lightning speed through our funding matrix and robust lender network. Yep… it’s that simple. We offer short and long term small business loans, working capital,
– Bradley Keys
Checking for pre-approval will not affect your credit score.