, something that everyone could use. But what exactly is working capital?
According to Investopedia.com, it’s “The capital of a business that is used in its day-to-day operations.” Working capital can also be calculated by subtracting your current liabilities from your current assets. Working capital has been referred to as the blood of your business, so it’s obviously a big deal. In this article you’ll find important things you might not know about working capital loans…Let’s get started.
1. Working capital loans can keep a business alive.
No matter what industry a business is in, at some point during their operations they need short-term working capital. For example, retailers need working capital to pay for seasonal inventory during holiday months. Businesses may also need working capital for a number of other things like: keeping up with competition, updating outdated products, services, office space, or recovering from a natural disaster…the list is endless. So frequently, businesses may not have the cash they need to prosper or grow in a tough economy and often times fail when they hit a rocky patch. Working capital loans are designed to provide businesses with the day to day capital they need to keep their doors open. These loans have saved so many businesses from going under because usually a quick cash infusion is all they need to get back on their feet.
2. The cash is quick.
Unlike traditional banks where it could take weeks or months to receive funding, working capital loans from alternative lenders are extremely speedy. Because the approval process is so efficient (most of the time approval only takes 1 business day) funding often occurs within 3-5 business days from approval.
3. It’s the easiest application you’ve ever seen.
You’d think a loan application would be long and tiring…right? Good news is that a one-page application is all it takes to apply for a working capital loan. You’ll be asked questions such as merchant type, owner name(s), percent of ownership, dollar amount you’re requesting, and telephone numbers/ addresses of the business. Very simple!
4. Collateral? What Collateral?
Collateral is a valuable asset that is promised by the debtor as a way to guarantee repayment of a loan. Loans from the bank require collateral of valuable items like your house, jewelry, or a car. If the loan is not repaid, your possessions are on the line. Working capital loans from most non-bank institutions don’t require collateral. Instead, previous and expected sales are examined. Your monthly cash flows are considered more important than collateral.
5. Use the money how you’d like.
Unlike traditional loans from the bank, which have heavy restrictions, you are able to use working capital loans however you see fit. They can even be used to pay taxes, bills and past due invoices. Working capital loans come in handy for unexpected payroll and sales tax bills as well. Seize new business opportunities or launch a new marketing campaign. Still haven’t updated your office? Now is the time. You get the point, the possibilities are endless.
6. Loan terms are fairly short.
Because working capital loans are used for a quick infusion of capital, they also come with shorter, more manageable terms ranging from 6-18 months. This way, you get what you need, and aren’t burdened with contracts or long term obligations. Who wants to be stuck repaying a loan 3 years later? With shorter terms it’s easier to qualify and be sure to keep in mind that the shorter the term, the less interest you’ll pay!
7. Credit score isn’t a top priority.
Having a good credit score is great, and it will most definitely be on your side when applying for a working capital loan. However don’t fret if your credit score is flawed. As stated before, qualifying for a working capital loan is mostly based on your cash flow. Lenders primarily take into consideration your ability to repay the loan as you currently stand.
By: Lauren Rockwell, a business writer and works on the marketing staff at Liberty Capital Group, Inc. She writes about the latest business trends and industry conditions, from international economics to business funding and financing. Her blogs are intended to offer accurate and concise advice to readers.