Small Business Loan Options

At one time or another, a small business owner may require additional working capital. This is regardless of the company’s financial health. There are unavoidable circumstances such as shift in demand, bad weather, or a fire that struck a nearby business that may disrupt a company’s cash flow.

Because of the unexpected nature of these events, working capital loans became popular. While most financial institutions and other business capital lenders cater to massive cash outlay like long-term investments, a working capital loan is specifically intended to help businesses cope with temporary cash flow problems. It also helps defray daily expenses and take advantage of sudden new business opportunities.

If you need more than just a little amount of money, but not too big, a working capital loan could be what you need.

Working Capital Loans Defined
Before defining what a capital loan is, it is important to understand the basics of working capital first.

Working capital pertains to the money that a business needs to cover the operating expenses every day. These expenses include rent, office supplies and payroll. These are the necessary expenses to keep the business going.

Working capital loans provide businesses with enough cash to pay for these operational expenses. The loan is available in different forms such as merchant cash advance, short-term working capital loans, invoice factoring, business line of credit, or SBA loan. Working capital loans are also called cash flow or operating capital loans.

How a Working Capital Loan Works
How exactly does a capital loan work? While this type of loan may come in various forms and different providers like traditional financial institutions and online lenders, they all have a number of things in common. For instance, these lenders require a decent credit rating or a collateral.

In contrast, you can apply for a working capital loan even with a not-so-sterling business or personal credit score. You can even qualify even if you have been in business for less than a year. A personal guarantee or collateral is likewise unnecessary. However, interest tends to be higher because of the shorter terms and loose requirements.

Working capital financing is easier to access through online lenders compared to traditional financial institutions. They don’t require borrowers to specify the intended use of the loan proceeds. They would even suggest repayment terms that will help you address your current financial woes.

There are alternative lenders that offer different types of funding solutions. For instance, the Business Line of Credit is recommended for highly seasonal businesses during the off-peak season when their cash flow is tight. A Merchant Cash Advance may be ideal for companies looking to bridge a short cash flow gap.

Terms for standard short-term loans may be as short as 4 to 5 months, but there are other working capital loans with longer terms, sometimes up to a few years.

The borrowing limit isn’t just based on the total of your monthly business expenses. It includes your other current or short-term liabilities that you need to pay in the near future like accounts payable, taxes, and loans. To put simply, the loan principal must be more than enough to cover your short-term liabilities.

At Fast Direct Funding, we specialize in facilitating Working Capital Loan applications. Get in touch with us if you have other concerns or to schedule a free consultation on how you can avail of additional working capital funding