5 Types of Working Capital Loans
Working capital loan refers to a type of business funding that helps a business owner take care of the day-to-day operational costs of the company. As they typically involve lower amounts and shorter repayment terms, working capital loans are not suited to finance huge investments or inventory purchases. Although businesses can manage a balanced working capital by generating more revenue, it might not be possible for every company. This is especially the case with startups, small businesses, and seasonal businesses. Working capital loans can be the best solution to maintain business operations and ease the financial burden for them. There are 5 main types of working capital loans that can be acquired by business owners to meet the growing demands of their company.
This is the most common type of business funding these days. Working capital in the form of short-term business loans is easy to acquire, involve comparatively fewer costs, and can be used for a wide range of purposes. These loans give the borrower access to a lump sum that is to be repaid usually within 3 to 18 months.
Lines of Credit
This is one of the most flexible options for business funding. This financing option offers the borrower access to a pre-defined amount, which can be used as and when needed. Working capital in the form of a line of credit can work best for small businesses, as they can have it as a backup in case their revenue goes down.
Merchant Cash Advances
Working capital loans can also be sourced as merchant cash advances. Here, the lender would fund the borrower a fixed amount in advance in return of a definite share of the projected credit card sales of the company. This is the easiest way of securing business funding these days, but it could involve comparatively more interest rates.
This is the simplest way of acquiring working capital funding for a business. Invoice financing can be a great way to manage the daily operational costs where customers are usually late to pay their outstanding invoices. This can work to free up the business capital and cash flow that can be used to maintain business operations.
A short-term loan secured by the Small Business Administration can be a great source of working capital. The SBA 7(a) loan program especially works well for acquiring working capital for small to medium businesses, which gives them access to funding ranging from $5,000 to $5 million that can be used for a variety of purposes.