You can use working capital loans to pay for your small business operational costs, such as rent, payroll and debt payments. They give you the flexibility to invest your company’s growth while covering everyday expenses.
If you have an established business with a steady cash flow, reach out to a bank as they offer the lowest financing rates. However, if you experience problems with cash flow, you can turn to traditional and alternative financial institutions to meet your funding needs. Some of these options include a term loan, a business line of credit or invoice factoring. You may also use business credit cards and earn rewards in the process.
In this guide, we’ll cover exactly how a working capital loan functions, and where to find the best online small business loans.
The most common type of working capital loan is a short-term working capital loan. It can be only a few thousands of dollars since it depends on your operational costs. Repayment schedule varies in frequency depending on the lender.
If you have substantial credit card sales, you should consider a merchant cash advance. This working capital loan provides a lump sum for a percentage of daily card sales until you pay back the balance. You can calculate the amount based on how much debt and credit transactions you are plan over a certain time. You will deduct payments when you make sales to avoid impacting your cash flow negatively.
You could also consider accounts receivable factoring, especially if you have unpaid receivables or invoices. The lender may purchase outstanding receivables for a discount, and the borrower will receive the money immediately. The lender then collects the payment from the customer. Once you raise the amount, the borrower gets whatever is outstanding from the first payment, minus a percentage.
Short-term working capital loans are great for cash shortages or short-term investments. If you are short on cash, you’ll get a loan if it is temporary and beyond your control. Short-term working capital loans also allow you to handle unplanned projects that require operational funding. It allows smaller businesses to accept profitable and long-term plans since they can wait until the completion of the project to pay their bills and employees.
You may also get a merchant cash advance for medium term projects such as a marketing campaign, a purchase of new equipment, bulk inventory purchase, or seasonal hires. You can use merchant cash advances when business is slow to help out long-term investments and then pay it back when revenue increases.
Accounts receivable factoring stabilizes your cash flow when you have pending payments from clients or customers. Instead of waiting over a month for refund, you get paid immediately after the purchase of the receivables. The borrower may use the money for anything. You may use accounts receivable factoring to sign a deal with a new client that you usually could not afford because of delayed compensation.
Unlike most small business loans, you can use working capital loans for running costs.
Your working capital consists of assets that you can convert into cash within 12 months, minus your due liabilities within 12 months. This is the money you have left over after you’ve worked out how much you’ve made and how much you need to pay out. Payroll, rent, and utilities all of them come out of working capital.
Your company will go well if you have a positive working capital, and working capital loans will be one way to ensure that this is the case.
Here are five general ways that you can put working capital loans to work for your small business:
Here are some general examples of how you can put a working capital loan to work for your business:
In a perfect world, you’ll be able to increase working capital by generating more revenue.
Unfortunately, this isn’t the way things work for every company. Some have to think outside the box, like seek working capital loans for small business through other means.
Your options include:
A working capital loan can help your business cope with seasonal decreases in revenue, cover maintenance costs and salaries or manage your assets.
If you need a hefty sum to cover expansions or equipment purchase, look for online lenders that offer low APRs and better reimbursement terms.
Companies in the business-to-business sector will face gaps in cash flow. Invoice financing is a good option in this case, but high APRs make this type of borrowing pricey.
If your credit score is bad, you may still get a working capital loan for your business. Here are some of the best lenders and you do not require a minimum credit score to apply.
If you have good to excellent credit scores, you may seek affordable working capital loans and lines of credit from banks and credit unions.
If you need to cover unpredictable expenses and gaps in your cash flow, you can consider a working capital loan. If your business has a seasonal business cycle, you may take advantage of this type of loan during months with lower sales to consider your daily expenses. During the busy season, you will be able to purchase more inventory and hire more staff. You may also choose this type of loan when you need extra funds to expand or start new projects.
Choosing a bank or an online lender will depend on a few factors. Borrowers who want an online lender will receive funds within a few days and don’t need to pay back the loan over a few years. Some repayment options will allow you to be debt-free in just a few weeks and you may use the loan for a different reasons. However, the APRs will be higher, and you’ll have less time to generate cash to repay the short-term loan. Banks can provide more top lines of credit with better terms, so they are an excellent option for an established business with higher running costs. However, banks have a more complex process and stricter terms and requirements.
You should compare all of your options using the APR, which is the actual cost of the credit and includes all fees. NerdWallet has a small business loan tool with options such as customer experience, market scope and lender trustworthiness.
Here are three steps to monitor your working capital:
There are many uses for working capital loans in a healthy small business. But just like any other types of loans, it’s essential that you look closely at the costs and fees associated with working capital loans.
Because of their fast approval process, and they frequently are unsecured. Working capital loans often come with substantial APRs, so get a couple of different quotations to get the best rate possible.
For a long time, many small business owners have depended on traditional term loans to inject working capital into their companies.
With the many alternatives to long-term loans, business owners are now taking advantages of short-term business loans that give them access to quick cash that they can pay off quickly and be debt-free to focus on running their business ventures.
In this guide, you’ll learn what these loans are, how they work, why businesses need short-term finance and the different loan types that are ideal for short-term business needs.
Let’s dive in
A short-term loan is a fast business funding option that gives small business owners access to quick cash when they need to handle unexpected emergencies, bridge cash flow gaps, or take advantage of a great business opportunity that would bring additional ROI to their companies.
Think of them as short-term financing that allows you to borrow a loan amount that you can pay off quickly.
As the name suggests, short-term business loans have a short repayment period, say, between 3-18 months.
You can apply for these loans online by filling out the lender’s loan application forms, wait for notification on approval, and if your request is approved, the cash is credited to your bank account within the same business day.
For your loan request to be approved, your credit scores have to be above 620. Excellent personal credit is an indication that you are a responsible borrower and that your delinquency rate is low.
Lenders prefer borrowers who have been in business for a long time and have consistent annual revenue.
Usually, short-term loans are risky, and to reduce this lending risk, lenders will charge high interest rates. You will also have to make daily or weekly payments since the repayment period is short.
This may affect your cash flows and receivables, and ultimately affect your bottom line. You may also be plunge yourself into a debt spiral since you’ll be forced to borrow more working capital to help meet your needs.
These loans, therefore, should only be used for short-term business needs as they are costly.
When looking for funding for your small business, you need to be sure why you need the money.
Some business needs will require long term loans while others are more short-term and will need fast business loans.
Some of the top reasons why small business owners require short-term business loans are:
Below are some of the most common small business loan options:
Small business loans are normally used to start a business, grow a business, purchase inventory or equipment, and acquire real estate. According to research done by the National Small Business Association, an astounding 69% of small business owners used this option to finance their ventures in 2016. Small loans in terms use of credit cards, venture capital and the very popular option of crowdfunding. The remaining 31% were not able to access enough financing.
The NSBA reports clearly identifies the relationship between small business financing and the capacity to hire and retain employees. The ripple effect results in the economic growth of locals and the national economic growth.
Alternative lenders market is ever on the rise, according to a data from U.S. Small Business Administration almost $600 billion was made available to borrowers in 2015 by banks while alternative lenders financed approximately $593 billion in the same year.
While small business loans can be a bit difficult to obtain, there are options out there you can easily use to your advantage. As stated, it is important to understand the cost of borrowing. Let’s get you started.
There are three commonly known SBA loans: SBA, 7A loans and SBA Express loans. They are ideally used for a broad range of purposes like refinancing and capital growth and CDC/504 loans are commonly used for the purchase of fixed assets such as real estate and machinery.
Upon getting this loan you will be charged all three fees and the Treasury bond rate. You will also be asked to pay a one-time fee of 2.1% to SBA. Thus, your final annual percentage rate will be slightly higher.
SBA loans can be a tad complicated and tedious to apply for, but they provide the best interest rates. If you are in need of financing there are many lenders online willing to help. Do your research, find a financial institution that will serve your needs best.
Lenders look at a few factors such as:
You now have some idea what determines business loan and their interest rates, where you can get them, and how they work. Do not stress over funding anymore. Get online and do your research find a lender who best suits your needs. Fill an application form today!
While it’s pretty common for business expenses to pop up when you least expect them, getting quick business loans in as soon as 24 hours from traditional financial institutions can be a major challenge for small businesses.
Most of these institutions will require tons of paperwork and insist that you to meet their stringent eligibility requirements before your loan request is approved.
Since time is a luxury for any small business owner, they are forced to seek out alternative lenders who can give them access to funds within the same business day.
In this article, you will learn everything you need to know about the different types of fast business loans that can tide you through a financial shortfall.
To get fast business loans really quick, you’ll have to follow the following steps:
In business, unexpected expenses can pop up when you least expect or are prepared to handle them. It is, therefore, important to have some funds set aside to handle contingencies or have access to guaranteed business loans from trusted lenders to help tide you through such financial shortfalls.
We can connect you with our trusted lenders who will approve your loan request in less than 24 hours and have the funds that you request credited to your bank account on the same business day. Fill out our online loan application forms and let us help you get the funding that you need.
Are you a top-notch chef with a desire to start a restaurant business and showcase your culinary skills?
Or are you a veteran looking for funds to grow and expand your business?
The truth is that hotel owners have always had a hard time getting financing for their businesses because the restaurant industry is considered risky.
Unfortunately, lack of funding is the number one reason why restaurant businesses fail after a few years of operation.
So how can a restaurant owner access funds for their ventures?
In this article, you’ll get an overview of the different kinds of restaurant business loans and why you may need them. You’ll also learn how to fund your business.
There are several small business loans for restaurants. Whichever financing option you choose will largely depend on your potential lender and why you need the funds.
Below are some of the most basic restaurant loans available to restaurant owners:
Most traditional financing institutions find the restaurant industry so risky due to their high rate of failures.
They, therefore, shy away from lending to such business owners.
Fortunately, some alternative lenders are willing to finance restaurant owners.
Below are some business loans options for restaurants:
To get in touch with our reputable lenders, fill out our online loan application form and let us help you realize your dream. Our application process is simple, and it’ll take less than five minutes to navigate through.
Having a good cash flow is very important for any business to run smoothly. When there are expenses, not to mention accounts receivables that may take time, sometimes it can be a big challenge for a business to search for the funds it needs to fund its growth and continue business operations. This explains why there are many business owners relying on factor. For many who have not yet tried this method, just what is factoring?
Factoring is a kind of financing that enables companies who are experiencing some problems in their cash flow to be able to get additional capital. If you happen to have clients who take 30 to 60 days before they pay up, this may create gaps in your cash flow, especially since you won’t stop acquiring new clients and providing products or services.
To fill in the gap, businesses turn to invoice factoring. Over the years, this type of financing method has become a widely popular choice among business owners. But if you are not so familiar as to how it works. This articles gives you a simplified explanation of the process and how you can get one.
Instead of applying for a traditional loan where you have to prove to the lender that you have good credit standing, invoice factoring works differently. You work with a factoring company that will buy your invoices. Once you decide to factor your invoices, it means that you are selling your invoices in lieu of the quick cash that the factoring company will give to you.
Factors will get your invoices and they will pay you installments. The first one is you get to have the cash advance. Once your client pays the amount stipulated in the invoice, the factor will give you the remaining amount deducting their fees.
Factoring companies offer different kinds of factoring. These are recourse and non-recourse factoring. With recourse factoring, the factoring company takes responsibility as payment for the invoice. With non-recourse factoring, companies sell invoices to the factor and the factoring company will then assume the credit risks in these invoices. Depending on the company, there are factoring companies that actually offer both non-recourse and recourse factoring.
There are various fee structures. The overall fee will depend on different factors which include the volume of your receivables, creditworthiness of your customers, etc. There are factoring companies that may have additional fees for money transferring, collateral, and shipping among many others.
Compared to other option, it is relatively easier for you to qualify for factoring. There are just two main requirements required for your invoices. First is that the invoices must be due from reputable and established commercial businesses or government clients. Another requirement is that there should be no encumbrances. Your company should also be in clean slate which means that it does not have any legal issues.
One of the main reasons why business firms factor is they want to boost their cash flow. Are you considering this option? Here are some of the benefits of factoring:
Given the numerous benefits of factoring, there is no reason why you should not. However, it still depends on what your business really needs. At the end of the day, it always helps that you are familiar with your options so you can easily compare and identify which financing option is the most suitable to your funding requirements. Once you have decided that you want to factor your business, the next step is for you to find a reputable factoring company that you can work with.
Small-scale business owners, despite having stellar credit scores, may still have a hard time securing a business loan from traditional lenders. The good news is that businesses now get to have various financing options. Nowadays, many would turn to factoring financing companies.
Factoring is not a loan. This is what you often hear from people. But basically, it works just the same. It is a kind of financial service where a business sells its receivables to factoring firms at a discounted rate to have quick access to funds. It is important to differentiate between factoring and invoice discounting. The former sells the accounts receivables to a third party.
The factoring company will then pay the seller after doing the deductions. The rate ranges from 2 to 6%. The factor will pay only from 75 to 80% after the discount deduction.
Before even deciding to go for this kind of financing option, it helps that you know the different functions of factor, which include the following:
Depending on the financial requirements, there are different types of receivable factoring. These include the following:
There are various advantages of accounts receivable factoring which include the following:
As with any financing option, there are also downsides in deciding to go for invoice factoring which includes the following:
After taking the time to weigh your options and you have finally decided to go for factor financing, the next step is to start searching for a factoring company.
So, what are the things you have to consider?
Factoring has its share of advantages and disadvantages. It will just depend on your business needs and other requirements. There are several reasons why a lot of business owners prefer to turn to factoring financing companies. If your business needs quick funding, this is one of the best ways to go. But just before you do, it is very important to select the right company in order for you to have a good experience. Keep in mind that selecting the wrong one can be really frustrating and may even lead to more problems.
Account receivables factoring is a financing method where you use your invoices and turn them into cash right away. These invoices are categorized in your ledger as account receivables where your clients promise to pay the certain amount stated. For business owners who need immediate cash, this is one method of financing that they can use. They can just find an invoice factoring company that offers this type of business loan and they are the one who will get paid by the customer.
Getting a bank loan might be the best option for most business owners. But if you need the funds really quick like for instance in 24 hours, the best way is to turn to receivables factoring companies. There are so many ways that factoring invoices can help a business. For instance, Sandy owns a repair company that does repair works and services. When there is a new client, Sandy has to buy the necessary supplies and pay the workers to finish the job.
Once the work is done, the company of Sandy will then send an invoice to the customer and payment is made usually within 60 days. When there is a new customer, Sandy has to buy materials and pay for the wages of the workers while still waiting for the invoice to get paid.
If you’re a business owner and you are operating on a small scale, your business’ resources may not be enough to cover all of the expenses to ensure there is a continuous flow of business operation. With invoice factoring, you can take on new customers and get hand of your cash flow.
If you have a good credit score, your access to credit is not a problem. You can have many financing options. So, when do you get invoice factoring? The answer actually depends on where you intend to use the money for. When you need immediate cash in order to fund your business growth, this is without a doubt a good option. With factoring invoices, you can have funds for the things you need to buy like supplies or for other expenses like payroll, renovation, etc.
Another reason why many business owners turn to invoice factoring is that this financing option offers fast funding. Invoice factoring companies don’t take that long to approve your application. In only takes hours and you can already receive the funding that you need the same day.
For people who do not qualify for a bank loan, this is a viable option. Even if you have a poor credit score, you can still apply for this type of loan. Why is it the case? Unlike traditional lenders like banks, invoice factoring companies consider mainly the quality of your customers/clients’ credit. After all, they are the source of the invoices or receivables.
When choosing a factoring company, there are essential things that you have to take into consideration.
This type of business loan should be able to help you address your cash flow problems. Prior to dealing with any loan companies, it is very important to know the kind of service that they give to their clients. There is no point in getting a loan from a company that will cause you problems. Pay close attention to the kind of service that you receive. It is also very crucial that you read online reviews. The company should be Better Business Bureau accredited and has the license to operate in your state.
To have access to financing options and to avoid incurring penalties, you need to have a good relationship with your invoice factoring company. If you know that a client may not be able to pay, do not even attempt to ruin your business relationship with the loan company. You don’t want to end up paying for the whole amount of the invoice plus additional fees.
Invoice factoring is a good solution for businesses that need instant cash and quick solution to address crash crunches and in order to fund business growth.