Working capital loans are some of the most underutilized funding sources, with most start-ups struggling through low cash flow seasons to get ahead of their daily operations needs. From helping you cover expenses such as payroll, supplies, and even rent, this source of financing will be your go-to when you experience seasonal sale cycles or when your cash on hand is running low. The following guide looks at what these loans are all about and how start-ups can utilize them.
Understanding Working Capital Loans
A working capital loan refers to financing designed to help with short-term financial obligations. Financing institutions will often estimate your financing by getting the difference between your current assets and current liabilities. Current assets include items such as inventory, cash on hand, and accounts receivables, while current liabilities include payments due within 12 months or your accounts payable.
Types of Loans
The first form of working capital loan is invoice financing. This option is a good alternative for businesses that invoice their goods or services after being delivered to their customers. Invoice financing allows you to borrow against these unpaid invoices with the loan amount paid after the invoices are settled.
Merchant Cash Advances
Merchant cash advances are eligible to businesses with credit card payments. Every time you record a credit card sale, your provider takes a portion of this amount until the loan amount is paid in full. It provides a temporary solution for businesses looking for short-term funding, helping you get back on track.
Line of Credit
A line of credit is also referred to as revolving credit, with this financing option allowing you to get a source of funds that you can borrow from, payback, and get more funding with ease. One of the benefits of this financing option is that it is available to businesses experiencing cash flow problems or any without this challenge.
An SBA loan is ideal for businesses and owners with a good credit score and a good history of operations. Since the Small Business Administration guarantees these loans, they are affordable short-term financing options, allowing you to take advantage of any one-off opportunities while helping you get your finances in order.
To get more information on how to qualify for any of the above working capital loans, make it a point to contact 18 Sierra Financial today. We will guide you through the most suitable loans for your specific business needs.