Balance cash flow with
working capital
Retail businesses often see most of their sales in the fourth quarter, during the holiday season. The manufacturers they order their products from also have seasonal ebbs and flows as a result. It can be difficult to manage fluctuating finances throughout the year since bills come in regardless of the season. Working capital loans can smooth out the yearly bumps and help a business manage costs like payroll, supplies, and materials all year long.
OVERVIEW
Working Capital loans are some of the most flexible forms of business financing available since they’re tied to neither real estate nor equipment purchases. The funds from working capital loans can be used for most common business expenses.
Loans can be secured or unsecured, depending on what the borrower qualifies for. In a secured loan, assets are leveraged as collateral, to mitigate risk on behalf of the lender. Unsecured loans aren’t tied to collateral but rely on the business’s credit history and reputation.
Term loans, lines of credit, and invoice financing are all forms of working capital loans. They provide fast cash on a short-term basis to cover emergency expenses or just ease financial stress. Some of these require collateral and some don’t. Lines of credit allow a business to borrow more than once under the same loan. Invoice financing relies on a business’s clients and their credit histories to qualify, rather than their own.
LOAN HIGHLIGHTS
Working capital loans are flexible financing options.
These loans help smooth out seasonal income fluctuation.
They can be either secured or unsecured loans.
Many options exist depending on the business’s needs.
PROS
- Approval times are typically shorter than they are for traditional loans.
- Borrowers aren’t tied into a long-term payment obligation.
- The variety in these types of loans means almost any business can find one that fits.
- Working capital loans can be ideal when unexpected situations arise.
CONS
- Unsecured loans can be hard to qualify for unless the borrower has excellent credit.
- A default can be reflected in not only the business’s credit rating but personal credit ratings too.
- If clients have a habit of paying invoices late or not at all, the business may be ineligible for invoice financing.