Businesses need access to cash to operate. Without it, it can be hard to meet everyday expenses that keep things running. But, it’s not uncommon for businesses to run into cash flow problems, especially if they are just starting out. One way to keep your company working through dips in cash flow is to utilize a business loan, specifically a working capital loan. But what are working capital loans? Read on to learn the basics.
Working capital and working capital loans
Working capital is the money used by businesses to keep the operations running. Simply put, working capital loans are a way to help businesses meet short-term operational needs. These may include:
- Payroll
- Equipment purchases
- Inventory management
- Debt payments
- Bridging seasonal dips in revenue
A working capital loan can help businesses through rough spots, such as paying the bills when customers pay late or while the customer portfolio is increased. Working capital can also pay for business or inventory expansion in order to sell more and grow the business.
What are working capital loans advantages?
There are several advantages to working capital loans, as compared to conventional bank loans. First, the process is often shorter and the requirements for approval can be less stringent. Gaining approval for a conventional loan with a bank can take weeks and the loan application process can be onerous. But a working capital loan is often much more streamlined. In some cases, it’s possible to be approved for a working capital loan in a few hours and receive your money in just a few days.
In addition, the business requirements for working capital loans are less stringent than conventional loans. Business owners who have been in business for less than two years often have trouble getting bank loans. Working capital loan providers often work with new businesses, even those who have been in business for less than six months. And, the collateral requirements are often less with a working capital loan. A bank loan may require property or equipment as collateral, which can tie the hands of a small business. A working capital loan leaves you free to use your assets to run your business.
What are working capital loans disadvantages?
Of course, you might need to pay a little more to take advantage of the flexibility of working capital loans. This could take the form of a higher interest rate or additional feese. Because working capital loans are easier to qualify for than conventional bank loans, lenders are assuming more risk and the cost of this risk is passed on to you in the form of higher interest rates.
However, working capital loans are short-term by nature. So, you pay off the loan quickly, keeping your interest payment costs down. Because working capital loans are considered short-term, they are not ideal for financing long-term business projects or goals. These types of expenses require longer payback periods.
ViewRidge Funding can guide you through the process of obtaining a working capital loan. We have the tools and expertise to assist you in getting the short-term help you may need to keep your business operating through times of need. Just give us a call at (888) 241-7241, or fill out our simple Get Started form online.