What is a Working Capital Loan and Do I need one?
Owning your own business is a constant balancing act. In an ideal world, tasks such as filling invoices, paying employees, and seeking opportunities for expansion all happen seamlessly and easily. However, small hiccups (like a delay in payment on a large invoice) can be quick to impact the rest of your business and interrupt that flow. This can cost you time, money, and precious opportunities for growth and expansion!
You’ve read that a working capital loan might be the solution to your problems, but you’re not sure what they are or where to start. Put simply, a working capital loan funds the daily operations of your business and keeps it running smoothly. Businesses of all sizes can benefit greatly from a working capital loan, and there are many different types available.
What type of working capital loan is right for my business?
So, what types of working capital loans are there? What type of working capital loan is right for your business? At LendSpark, we offer a variety of different options for working capital loans. With terms from three months to twenty-four, and loan amounts up to two million dollars, you can be sure that LendSpark will work to find the option that best suits your business and its needs.
LendSpark was recently able to help a Steel Contractor in the southwest whose business was growing rapidly. They had won new contracts but needed to purchase a substantial amount of new inventory and hire more employees to be able to fulfill these contracts. LendSpark was able to partner with this steel contractor and obtain the financing needed to make this happen.
Working Capital Short Term Loans
This is a loan disbursed in a lump sum meant to be paid back over a short time period – typically less than 24 months. They are an essential part of many modern-day businesses due to their flexibility and versatility. This type of working capital loan is a great option for funding new contracts or fluctuations in sales. This can also be a great place to start if opening a line of credit isn’t yet achievable or currently feasible for your business.
Perhaps you own a seasonal business, and you need a way to get by during the off months. Working capital loans can provide you with the means to prepare for your upcoming busy season. Alternatively, maybe you are ready to expand your business to serve more clients or fill larger invoices. A working capital short term loan can fill this purpose for you as well. While these are only a couple of examples, working capital short term loans can be used for these purposes and many more.
Working Capital Lines of Credit
A working capital line of credit gives your business a revolving pool of funds to tap into when unforeseen expenses or cash flow issues arise. The key feature of this type of working capital loan is that it is revolving. This means you can tap back into this pool of money each time you pay down or pay off the balance, making this type a very flexible and attractive option.
Many businesses use working capital loans to cover or prepare for emergency business expenses. For instance, unforeseen bills, slow-paying customers, or need to purchase materials for a new project all create needs for working capital. Many businesses utilize working capital loans as safety nets. Sometimes your business will face some adverse situations that having a line of credit to tap into can alleviate. For example, legal issues can financially cripple a business if caught off guard. Planning ahead for the unknown and having access to a line of credit can be a multi-use tool in a business owner’s toolbox.
Merchant Cash Advances
Ideal for retail businesses, physicians, dentists, auto repair shops, and other small companies without large accounts receivables, merchant cash advances involve a merchant advancing funds to you in exchange for a fixed daily percentage of your business’ credit card sales or future receivables. This type of working capital loan can be easy to obtain and funded quickly, however, it can come at a higher cost. The positive to a cash advance is that it will allow for greater flexibility with your business.
This is a special type of financing for businesses that struggle while waiting for their invoices to be paid. Invoice financing involves borrowing against invoices that are still due to your customers. Customers can wait to pay you, but you know you cannot delay when paying your employees or suppliers! Invoice Financing, also known as factoring, allows you to free up cash flow for you to use rather than act as the bank for your clients to pay you for your services or products. Costs are included for receiving cash from a lender before your client pays you, however, having the cash to pay employees, purchase inventory, manufacturing product and run your business in many instances greatly outweighs the cost of financing your invoice.
LendSpark worked with a manufacturing company that had large amounts in accounts receivable from various large box customers. The company was growing and needing to constantly purchase new inventory for future orders. In addition, the company was hiring new employees and each new hire had a sizable expense for on-boarding, training, and technology. By utilizing an Invoice Financing line, the company was able to free up cash flow, finance their growth, and purchase new inventory, allowing the company to grow and thrive.
So, what type of working capital loan is right for your business? The answer to that question depends on many factors, such as the size and type of your business, and what your particular needs are, both now and in the future. At LendSpark, we will work through identifying these objectives with you, as well as examining your goals and possible opportunities. We can examine possible limitations and put together a plan to manage those obstacles.