Business Working Capital Loan | Business Loans

Working Capital Loans

Quick Overview

  • Short or Long-term availability of Working Capital Loans.
  • Cover overhead and operational expenses for Working Capital Loans.
  • Easy and fast to secure Working Capital Loans.
  • Flexible terms for Working Capital Loans.

By Bradley Harris | Last Updated: August 25, 2022

Working Capital Loans are an important resource for businesses. Businesses of all sizes require capital in order to operate. Small and medium businesses, in particular, may need infusions of capital at different points in their journey in order to succeed, and Working Capital Loans can help. There are different types of Working Capital Loans that businesses can access to help to bridge cash shortfalls and ensure their business can make ends meet and succeed.

What is a Working Capital Loan?

Working Capital Loans are a type of financing that a business owner can secure to cover operational expenses for their business. Working Capital Loans are generally used for short-term needs and can be used to bridge a temporary budget shortfall to pay for things like payroll, inventory restocking, to pay down debt, or making rent. Working Capital Loans can help take a business to the next level of growth.

How Do Working Capital Loans Work?

Working Capital Loans are especially useful for seasonal businesses that might need a capital infusion to get through slower or off-season when cash flow has anticipated low revenue months. An example of a business that might need and benefit from Working Capital Loans is a shop that caters to tourists in the summer months and experiences low volume in the winter months. It might need an infusion of capital by way of a Working Capital Loan to cover overhead expenses through the slow season. A Working Capital Loan can help make up for that additional expense or shortfall. A Working Capital Loan could make a difference between a business succeeding or failing.

Reasons to Get Working Capital Loans?

Working Capital Loans are useful to help cover short-term business expenses. Needing a cash infusion isn’t an indication that your business is failing. Most businesses, in fact, have an ebb and flow of cash, unexpected expenses, and growth spurts, any of which can cause a need for a Working Capital Loan to help make up the difference.

Sometimes invoices don’t get paid on time, which can cause a budget shortfall that a Working Capital Loan can make up. Or payroll is higher than anticipated due to fast business growth that cash flow can’t keep pace with, and a Working Capital Loan can ensure employees get paid. Or perhaps your business needs to make a few big, unforeseen purchases like new kitchen equipment if you’re a restaurant, or new furniture for an office, and cash-on-hand is low, and a Working Capital Loan can cover it. Or maybe there’s an emergency, and a Working Capital Loan can help with repairs. It may be that your business is moving to a different location, but there’s still a month or two left on the current lease, and a Working Capital Loan is needed to pay redundancy rent for a month or two. These are just some of many examples in which Working Capital Loans can help cover necessary short-term expenses to keep a business afloat.

Pros and Cons of Working Capital Loans

There are pros and cons to pursuing a Working Capital Loan for your business. The application process for a Working Capital Loan can be fast and easy to secure, interest rates can be higher than more traditional loans, and depending on the business’ assets and credit history, can pose a greater risk to the business owner if they default on a Working Capital Loan.

Pros of Working Capital Loans :

  • Fast and easy to secure
  • Funds received as a lump sum in Working Capital Loans
  • Businesses retain full control with Working Capital Loans

Cons of Working Capital Loans :

  • Interest rates can be high on Working Capital Loans
  • Collateral needed to secure Working Capital Loans
  • Defaulting on Working Capital Loans could hurt business owner’s personal finances

Different Types of Working Capital Loans

There are different types of Working Capital Loans that you can consider to help finance your business. Some Working Capital Loans come with fixed interest rates that won’t change over time, and other Working Capital Loan options are more variable, subject to change based on the market, your eligibility, and the conditions of the particular loan.

  • Working Capital Loan term: Working Capital Loan paid back within a set amount of time and fixed interest
  • Working capital loan credit line: Borrower pays only funds that are withdrawn from Working Capital Loan.
  • Working capital loan equity funding: Working Capital Loan confirmed by personal resources.
  • Working capital loan invoice factoring: Working Capital Loan based on confirmed sales.
  • Working capital loan merchant cash advance: Working Capital Loan based on future credit card receipts.
  • Working capital loans trade creditor: Credit from a large supplier Working Capital Loans

There are several different Working Capital Loan terms businesses can consider. Each Working Capital Loan type has different advantages and considerations, and is based on the business’ eligibility and needs. Generally, Working Capital Loan terms dictate how long the business has to pay back the borrowed sum. Variables such as interest rates, repayment amounts, and other conditions are related to the type of Working Capital Loan term.

Pros and Cons of Different Working Capital Loan Terms:

Short-term Working Capital Loans (months)

  • Pros: Good for covering cash shortage, easier to qualify for
  • Cons: Less financing and less time to repay

Intermediate Working Capital Loans (months to several years)

  • Pros: Repayment for Working Capital Loans can come from profits
  • Cons: Can have higher interest rates on Working Capital Loans

Long-term Working Capital Loans (up to 7 years)

  • Pros: Time to repay Working Capital Loans
  • Cons: Harder to qualify for Working Capital Loans

Working Capital Loan Eligibility

Businesses are evaluated for Working Capital Loans based on several factors, including the business’ collateral, namely its asset to-debt ratio. Other factors, such as the business’ credit rating and history, how long the business has been operating, as well as monthly revenues and cash flow, can impact eligibility for a Working Capital Loan.

Businesses with bad credit or no credit history may have fewer options in terms of Working Capital Loan eligibility, but again, the benefit of working with online lenders is that they look beyond just credit and provide the opportunity to get approved for an unsecured Working Capital Loan, which enables borrowers with no collateral, newer credit histories or lower credit scores to have access to Working Capital Loans and financing for their business.

Where to Apply for Working Capital Loans?

You can apply for Working Capital Loans through a traditional lender like a bank, or online lenders. The benefits of securing a Working Capital Loan for your business from an online lending platform, as opposed to a traditional bank, are many. Online lenders and sites like BusinessLoans.com that aggregate loan options, can streamline the Working Capital Loan application process and help businesses, particularly small businesses, compare working capital loan terms and get smarter about selecting the Working Capital Loan that works best for their needs.

Benefits of Online lenders for working capital loans

  • More options to choose from for Working Capital Loans
  • Easy to compare and contrast Working Capital Loan options
  • Easy application process for Working Capital Loans
  • Fast approval process and access to funds on Working Capital Loans

Bottom Line

Working Capital Loan can help a business, particularly a small or medium-sized business, bridge needed expenses. Working Capital Loan types and terms differ based on need and eligibility. The application process for Working Capital Loans can also vary based on several factors, including the amount and type of loan a business is seeking as well as the financial assets and documentation a business produces. We help you compare multiple Working Capital Loan options.

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