As the owner of a small business, you’ll sometimes need financial assistance to help sort out your everyday expenses when cash is tight. That’s where a working capital loan comes in useful. They’re also handy if you need just a small cash injection to help grow your business to the next level.
Working capital loans are ideal for small businesses because you don’t have to borrow large amounts to qualify for the loan. If your small business is experiencing minor cash flow problems, then talk to Clear Skies Capital about how a working capital loan could help.
Defining a Working Capital Loan
Simply put, it is a business loan that helps to cover the everyday running costs of a business, as opposed covering big, long-term expenses like purchasing property or large equipment. For example, small business owners may utilize a working capital loan to purchase stock, cover salaries or pay for emergency expenses.
Some businesses are seasonal, such as those in the tourism industry, outdoor adventure businesses, or garden services. During out of season times, profits are low but there are still overheads to be covered. A working capital loan can help to tide you over these times.
Examples of Working Capital Loans
1.) Merchant Cash Advance
This is not strictly a loan, but rather an advance given against the future sales of a small business. You will be given a lump sum which is then paid back by using a percentage of your credit or debit card sales.
2.) Invoice Financing
Invoice financing is similar, but it’s an advance given against the unpaid invoices a business has. A fee of around three percent of the value of each invoice is included.
3.) Invoice Factoring
This is a once-off arrangement where a business sells its unpaid invoices to the lender at a value of about ten percent less than what they’re worth.
4.) Short-Term Business Loan
Typical business loans start with large amounts- usually around $30 000 or more. They may be paid off over a longer period of several years. Short-term business loans, on the other hand, are for smaller amounts, often starting in the region of $2000. They are paid off in a shorter period.
Let’s Define “Working Capital”
Working capital is the money a business has immediate access to in order to cover its short-term needs. It’s easy to calculate. Simply add all the business’s liquid assets, for instance, cash and accounts receivables, then subtract any debts from this figure.
If your business has a positive working capital, then it means that most of the time you are bringing in more than you spend. You have a good financial buffer if emergencies crop up and can possibly afford to take on more debts.
If your business has a negative working capital it may be better not to take out any new loans but rather to consider other options. For instance, find an investor.
When Might My Business Need a Working Capital Loan?
As previously mentioned, you might consider one if your business is seasonal and needs help during the off-season. You are sure that business will pick up in a month or two but have expenses to cover immediately.
If you just need a loan for a small amount and don’t wish to take out a full-on business loan over several years. A working capital loan will give you just the right amount of funding and no more.
When you need funding quickly, a working capital loan is ideal. Clear Skies Capital gives you quick approval and funding, so the money would be in your account within a matter of days. If this sounds like the perfect solution for your small business, don’t hesitate to contact our experts at Clear Skies Capital today.