Available working capital business loan for small businesses
Schools, boutiques, coffee shops and restaurants are categorized as small businesses, and all have one thing in common – they require working capital. If the businesses do not have enough cash flow, it can be challenging for them to meet their short term financial needs, which include purchase of inventory, paying their staff and dealing with emergency situations.
If you are short on cash to cover your daily business expenses, taking out a working capital loan can come in handy. This type of business loan capitals can be used to meet your small business financial needs heads on and you wouldn’t want to be left out on such an opportunity. Working capital restaurant loans are designed to cater for everyday business operations. The loans are short term in nature, which means that they have to be paid within a short period of time, usually less than one year. The loans are intended to meet short term financial needs rather than financing long term business goals like purchase of major equipment or business expansion.
Types of working capital loan
A business capital loan can be used for different purposes. This includes:
- Hiring temporary employees for a business promotion
- Renewal of business insurance covers
- Purchase of essential supplies for the business among others
When you think that a fast working capital loan is the best option for your business, there are several options to choose from. The line of business you operate in will greatly determine the type of quick business loans that will work best for you.
- Merchant cash advances
When you need quick business funding, you can opt for an advance payment against the future income of your business. This is what is referred to as a merchant cash advance. The lender gives you a lump sum which is repaid automatically with a percentage of your daily credit card receipts. This can be a good option to quickly put working capital in your hands. You can borrow between 50% and 250% of your business credit card transactions. The main disadvantage of a merchant cash advance is that it attracts a high APR making it an expensive choice.
- Invoice financing
With invoice financing, also referred to as account receivables, small business owners can borrow funds with unpaid invoices as collateral. Just like the merchant cash advance, invoice financing offers quick funding with a short repayment period. The no credit check business loan option can help solve problems that come with customers taking too long to pay and difficulties obtaining other types of business loans.
- Term loans
Terms loans can be used for different ways and this includes providing working capital. For instance, business owners can use a term loan to pay suppliers or for website upgrade. Term loans have flexible repayment terms with some having a repayment period of more than 5 years. The loans are repaid in installments form. However, it is important to first confirm that you are able to repay the loan on time before taking it out.
- SBA loans
SBA loans are among the popular financing options for businesses for two main reasons;
- They have high borrowing limits
- They have low interest rates
The only disadvantage of SBA loans is that it can take several weeks to access funds. This leads to inconveniences are especially if you need urgent business funding.
How to qualify for a working capital loan
Finding a loan to boost your working capital funds is among the best ways to maintain a healthy business. You can easily access a working capital business loan if you can prove that your business is in good standing and your expansion plans will be successful. The loan requirements vary depending on the lender. Most lenders have the following requirements;
How long have you been in business? Generally, business owners who have been in the industry for a long period have higher chances of obtaining a working capital loan compared business startups. This is because owners of established businesses can easily demonstrate to the lender that they have the experience required to protect their investment.
- Bank statements
Telling the lender that you are successful is not proof enough-you must prove it by showing your bank statements. This acts as evidence that you are able to manage your business finances and you can use the money wisely. Most lenders will require you to give statements for the last 3 months before providing the loan.
- Annual gross sales
A healthy business should have the ability to generate profits, and this is also what many lenders look for. You have to show your lender your gross sale for the previous year to show that you that you know how to make money.
Some lenders will also consider your business and personal credit scores.
Does your business require working capital?
Working capital loan is among the easiest ways to ensure business prosperity. These types of loans are unsecured in nature, which means that you do not have to issue any of your assets as collateral. They can be a perfect solution for businesses that are just starting out and have a low cash flow.
Benefits of working capital
- Your business will be prepared to handle arising challenges
Many businesses, even those that are already established are considered bankrupt if paying monthly bills become a challenge. This will also affect the credit rating of the business. With a lower credit rating, a high interest will be charged when money is borrowed. Applying for a working capital loan can maintain the business when there is shortage of resources.
- You can maintain business ownership
If you request funding form an equity investor, you will have to give out a percentage of your company. This means that your decision making power will reduce. By taking out a working capital loan, you will freely run your business without any interference.
- No collateral required
Generally, there are two types of loans – secured and unsecured loans. Most working capital loan is unsecured. Businesses with a good credit rating have higher chance of qualifying for a small business working capital loan. If you qualify for an unsecured loan, you won’t need to issue any of your business assets as collateral. But it is also important that you pay the loan on time since the cost of defaulting can be high.
- Ideal for short-term problems
Small business capital loans are designed to cater for a business short-term financial needs. You won’t have to worry about repaying the loan for many years.
- Can be used for any business need
Most financial institutions do not have restrictions on how to use a working capital loan. Whether you want to make an investment or cater for your day to day operations is your own decision.
- Application process is straightforward
Applying for personal or small business loans take a lot of time and at times, your loan application may not be approved. This is where working capital loan come in. There are many online lenders who provide working capital loan online within a few business days.
Finding the best working capital loans option
Asking questions is essential for you to find their best working capital loan for your business. Some of the things you need to consider include:
- The APR and fees charges
- Repayment terms
- How the loan will be used
- How urgent the funds are
- Your business cash flow
As a rule of thumb, a healthy business should have twice as much value in current assets in relation to liabilities. But when there is a change in business structure, let’s say you are expanding the business; this ratio can be challenging to meet. If you need more cash to start or expand your business, a small business working capital loan can be a good option. The loan can be used for different purposes including purchase of new equipment, bill payment and advertising. Getting a small business loan for working capital from conventional institutions can be tough; most of them will require high value assets as collateral among other hard to meet requirements. But thanks to online lenders, you can easily get a working capital loan online.
Joshua is a financial lawyer who plans on writing a book about his experience on debt collection laws and lending terms and conditions. He is currently one of the senior partners at his law firm but wants to take more time off for his writing.