A working capital loan is a useful tool businesses can utilize to gain access to funds based on outstanding invoices the company has that have yet to be paid. This can be particularly useful for businesses that have a strong need for cash today to take care of the needs it is facing. Common examples of business needs that we often see are:
1. Cash on Hand for Emergencies
Having cash on hand is paramount for most businesses so that if an emergency arises it can be dealt with. For one business this may be for an unexpected expense that arises out of nowhere that must be dealt with immediately, for another this may be the peace of mind that comes in knowing cash is on hand if necessary so they can focus more clearly on important matters at hand.
A common example we see for this is when a tax bill comes unexpectedly, or an increase in insurance costs. These are expenses that can be budgeted for, but if a new one arises or is increased without prior warning it can put a business in a touch bind.
2. New Opportunities for your Business
Opportunities often arise at the most unexpected moment, and more often than not they don’t last for long. Perhaps it’s a chance to improve on your company’s computer equipment or it might be a chance to pick up an additional vehicle for a trucking a business at a greatly reduced price. Many successful business rely on being able to maximize these fortuitous chances when they appear in order to turn a profit at the end of the year.
3. Bridging the Gap of Uneven Cash Flow
Many companies deal with seasonal income spikes or just deal with the ups and downs of inconsistent sales on a month to month basis. Having access to the funds necessary to last until the next large revenue deposit can be the difference between the doors to a business staying open or closing.
Examples of this could be a business that closes down or sees a dramatic decrease in the winter months due to snow. Many businesses in these situations budget for these projections in advance, but perhaps the decrease is larger than expected one year? This is where a working capital loan could be quite useful.
While a working capital loan can be an excellent source of financing for businesses it’s important to consider other options such as a business line of credit or a regular business term loan as alternatives. The goal is to have access to capital when needed but to pay the lease amount in interest and loan costs possible. Options are typically a bit more limited if a business has poor or damaged credit, but there are lenders that specialize in difficult situations and there are ways to improve credit standing quickly as well as for the long term going forward. When it comes to business financing it’s important obviously to take care of the business at hand today but to also make decisions and plans that benefit the business going forward to maximize options down the line as well.