Obtaining Working Capital Funding.

What is a working capital loan?

Working capital, also known as operating capital, is the cash available for the day-to-day expenses of running a business. It represents a company's efficiency and short-term financial performance. It's vital to have the 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. It can be challenging for small businesses to obtain small business loans for working capital from traditional lenders who typically require extensive collateral or other guarantees that 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 should you encounter untimely cash flow gaps, seasonal lulls, or the need to finance new equipment. By utilizing working capital loans, you can invest in your business so that you can ultimately cover your operating expenses.

What types of working capital loans are available?

• Bank credit line: An agreement made with a financial institution wherein a customer may borrow up to the maximum of a fixed amount. These can be secured and unsecured loans.

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

• Funding via personal resources: A home equity line (HELOC) or investments from friends or family are common for these types of loans. This source of funding can be a good fit for new businesses without established credit history or transaction data.

  • HELOC: A HELOC requires you to put your home equity on the line, similar to a second mortgage.

  • P2P or Family: With a loan from family or friends, you need to be mindful that they've lent you money and expect to pay it back. Failure to do so could result in severed ties between you and a loved one.

• Factoring or Accounts Receivable Financing: This is when a business sells its invoices, or receivables to a company for a cash advance. The company makes the collection of payments easier for you by collecting invoices directly from your customers. Factoring accelerates cash flow rather than waiting 30, 60, or even 90 days to get paid. Factoring companies typically look for established businesses, but new businesses like restaurants with high transaction volume may also benefit.

• Trade Credit: Your supplier may offer an inventory line of credit if you have an established history of paying on time. Generally, the trade creditor will thoroughly check your company's credit history.

• Equipment Loan/ Lease Financing: Businesses need to upgrade and replace equipment to continue operations and remain efficient. An equipment loan or lease financing product provides the capital to buy or lease critical machines, parts, or appliances to keep you running. These products offer peace of mind knowing your small business will be ready to face any situation should something break.

Is a working capital loan right for my business?

A working capital loan is one of the easiest ways to harness the potential of your business. These types of small business loans often act as unsecured debt, so they don't require you to provide traditional collateral. They can be a great solution for small businesses just starting out, don't have traditional collateral, or are simply in a period of low cash flow.

Where does working capital come from?

Working capital is calculated by subtracting current liabilities from current assets. CURRENT ASSETS - CURRENT LIABILITIES = WORKING CAPITAL

What are the benefits of a working capital loan?

Your business is better prepared to handle any challenges or opportunities that arise.

Applying for and using a working capital loan when you need it most can keep you in business when shortages in resources occur. Even a business with billions of dollars in fixed assets will quickly find itself bankrupt if it can't pay monthly bills. Under the best of circumstances, poor working capital leads to financial pressure on a company, increased borrowing, and late payments to creditors – all of which result in a lower credit rating. A lower credit rating means lenders charge a higher interest rate on money borrowed.

You can maintain ownership of your business.

If you were to receive funding from an equity investor, you would likely have to give up a generous percentage of your company in return. In turn, you are giving up a portion of your decision-making power. If you borrow funds from the bank or another financial institution, you are obligated to make the agreed-upon payments on time – but that's where your obligations end. You can run your business without outside interference.

Collateral is not always required.

In general, there are two types of loans: secured and unsecured. Working capital loans come in both types, although many are unsecured. Unsecured working capital loans are given only to small businesses with an excellent credit history and little to no risk of default. If you qualify for an unsecured loan, you won't need to put up your business, inventory, or other assets to secure the loan. Of course, paying the loan back is critical, given the costs of defaulting.

Can you use the money however you see fit?

Banks and other lenders have few – if any – restrictions on how you use the money. Whether you need to maintain your operations or make an investment, how you use the funds is your decision.

The application process is straightforward.

A working capital loan available online is a great way to access funds without the long-waiting period hassles associated with a traditional bank loan. Applying for a typical business or personal loan can take up much of your valuable time and may not result in approval. It often includes extensive paperwork, a lengthy approval process, putting up collateral, making fixed monthly payments, and having restrictions on how you use the money. Qualification is generally determined within a few hours, resulting in a faster turnaround compared to traditional lenders. This makes online working capital loans more appealing for those who need quick access to capital.

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Online lending platforms like Fundblock Capital can be a great way to access capital quickly and efficiently without traditional loan providers' extensive documentation and application processing time. We offer ongoing access to working capital to help you cover routine business expenses. Through the simple, online approval process, we look at your business performance in real-time to determine the amount you qualify for.