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Pros and Cons of Working Capital Loans for Small Businesses

Working capital loans in Kennesaw, GA, allow your company to have the cash flow it needs for staff, inventory, growth, and other business expenses. This short-term loan is usually very beneficial, but as with any loan, it’s important to know the benefits as well as some of the potential problems with a working capital loan. Here are the pros and cons of this type of loan.

Pros

  • No Collateral Required

Working capital loans for small business in Kennesaw, GA, are a great option to boost your cash flow because there are unsecured loans that don’t require any collateral. So if you have a history that shows little risk of default, you can obtain a loan for your immediate cash needs that doesn’t require you to put up collateral like your business or home. This means that you’ll always retain ownership of your business.

  • Better Cash Flow

A working capital loan gives you the cash you need to meet your basic business expenses if something goes wrong and you need some time to recoup losses. It’s also a great way to keep your company’s growth from getting out of hand, which is sometimes the case with rapid growth. You’ll have the cash you need to purchase inventory and pay for the staff you need to keep your business running smoothly while you grow.

  • Spending Flexibility

With working capital loans, you also have the flexibility to spend the money however you see fit. There are generally few restrictions on how the money is spent as long as it’s used to keep your business running.

  • Processed Quickly

Working capital loans are also usually processed more quickly than other types of loans and you can pay them back quickly as well.

Cons

  • Repayment

Like any loan, it must be repaid, and depending on the loan, there may be a high interest level required. Some loans also have a short repayment time frame since the loan is intended to help you get through a temporary cash flow problem.

  • Credit Impact

If you’re unable to meet the terms of the loan your credit will be negatively impacted. That’s why it’s important to understand all the terms of a working capital loan to be sure it will only benefit and not harm your business.

Typically working capital loans are tied to a business owner’s personal credit score. This can complicate the approval process or increase the cost of repayment.

  • Short-Term

Working capital loans like a term loan or a line of credit are geared for short-term financing. They are positioned as a supplementary financing method rather than the main method of business financing. If your business reaches the end of the line of credit, will you have enough money to keep operating?

working capital line of credit

Is Invoice Factoring a Working Capital Loan?

In short, no, invoice factoring is not a working capital loan. Invoice factoring is basically a revolving line of credit on your receivables. This means that there is no ending term for the financing and as your business grows, so does your financing amount available. This method of small business financing does not require repayment, as it is not a loan but rather an advance on your open invoices. Factoring services operate similarly to working capital loans in that the funding is flexible, meant to improve cash flow, and does not require collateral.

CEO Ian Varley discusses online loans in the video below!

 

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