working capital loans for small business

What Are Working Capital Loans?

What are working capital loans for your business? Every business, small, medium, or large needs working capital. It is the finance fuel that helps you maintain and grow your business. Working capital covers your payroll and all your business expenses, whether it is a line of credit or a different kind of finance. You need it. It is the lifeblood to finance your business. So, what are some different working capital loans for your business?

Bank Loans

So, there are many forms that this can take. A traditional bank loan is one way to go. Obviously, you may struggle to obtain bank financing for various reasons. First, if you are a new start company or if you have some personal credit challenges, a bank may turn down your financing application. Also, if your balance sheet is just not there yet, a bank line of credit may be difficult to obtain. They will look at your track record and want to see some longevity and deep pockets to give you a good facility.

infographic on how to get a bank loan

Online Working Capital Loans

So, many small businesses will look to alternative forms of finance as a solution. There are many online lenders these days, whether it is a merchant cash advance company or an online lender. You can go online and qualify for these online working capital loans very quickly. They are useful tools. However, online working capital loans get expensive very quickly. If you are applying for a loan online, make sure you understand what that interest rate is. Also, understand what the daily, weekly, or monthly repayment is going to be. Most importantly, can you afford to repay it? 

small business funding comparison

Online Loan Dangers

Bear in mind online lenders may have an early termination penalty among other fees that could be unforeseen costs in addition to the loans. Also, we have seen many companies that can get into difficulty with them as well. A business takes out one loan, struggles to make the repayment, and takes out another loan. It becomes a snowball effect. So again, although they are very useful, watch out for these online solutions. They may not be as good as they seem, and while they are easy to qualify for versus a bank for example, they can actually do some harm to your business in terms of your cash flow.

Factoring Your Working Capital

Consider factoring as a working capital solution. Factoring is not a loan. At the end of the day, we are providing you a financing tool against your sales. You can then bridge the credit gap between when you complete a sale and when your customer pays you. Typically, that is going to be a drag on your cash flow, especially if you are a growing company and adding to your sales each month. Factoring is a great working capital tool. It is not expensive, and you don’t make any repayments. We obtain payment from your customer at the time that the invoices fall due and advance you the funds on the new invoices each time you make a sale.

bridging the cash flow gap

Invoice Factoring Benefits for Working Capital

So, for many companies they find factoring to be a flexible alternative that really becomes an extension to their business. We strive to be a funding partner that understands what our customers do and support them through their growth. We see many clients here at Eagle that come on board at a certain size, and we help accelerate and fuel their growth because they are comfortable in the knowledge that the funding is there to really help them grow without debt. So, as a small business you have many options available to you. If you would like to discuss how factoring fits in your working capital financing plan, give us a call.

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