Working Capital Loans

Working capital loans provide short-term funding to cover expenses without needing collateral up front.

What is a working capital loan?

Working capital is the cash available for the day-to-day expenses of running a business and is a measure of both a company’s efficiency and short-term financial performance. It’s vital to have cash flow to cover payroll, inventory, marketing campaigns and any other financial expenses that occur within daily operations. Businesses should focus on maintaining enough operating capital to sustain growth.

Net working capital is a calculation of current assets minus current liabilities. It can be challenging for small businesses to obtain small business loans for working capital from traditional lenders because they typically require extensive collateral or other guarantees the money will be repaid. In addition, it is becoming more common for traditional lenders to require substantial personal guarantees, such as the business owner’s home or other highly valuable collateral.

A working capital loan allows you to continue your daily operations despite an inability to cover ongoing operating expenses. In this way, you can buy time to generate revenue based on existing capital and resources.
What types of working capital loans are available?
Below are some of the most common working capital loan options you’ll find.

Bank overdraft facility or credit line: Borrowers will only pay for the interest applicable to the amount of money overdrawn – typically 1 to 2% above the prime rate of a bank.

Short-Term Loans

These typically carry a fixed interest rate and payment period. This type of small business loan is usually secured, and you may be able to get short-term debt without collateral if you have a good history with your bank.

Equity Funding via Personal Resources or Investors

Personal resources, such as investment from friends or family and home equity loans, are common for these loans. This kind of working capital loan can be a good fit for new businesses without an established credit history.

Accounts Receivable Loans

Another way to secure working capital is by applying for loans based on confirmed sales order value of your company. However, it can be challenging to get this type of loan if you don’t have an established track record for paying debts.

Factoring or Advances

The value of factoring or advance loans is based on future credit card receipts. This type of working capital loan is a good fit for businesses that accept credit card payments.