What You Need to Know About Working Capital Financing

Working capital is the life force of every business. Without it, the company cannot function and pay for daily operations. It is not an uncommon practice for a small business to take advantage of working capital financing, whether it is to make ends meet or to expand when business is thriving. It is also important to note that there are a wide variety of options for loans, so you can likely find a deal that fits in your budget and your requirements, even if it does not seem like it.

The first kind of financing is one you are probably already familiar with. Traditional working capital loans are what most people think of when they imagine borrowing money. A sum is received immediately and then repaid over the following months. It is the simplest type of loan, but it is still an excellent way to handle straightforward expenses that you are aware of in advance.

If you are a little more strapped for cash, you might consider a merchant cash advance for working capital financing. Rather than just borrowing money, a cash advance is more similar to borrowing against your future income. Like a normal loan, you get funds immediately, but the amount you repay is based on how much money you make. It is typical to pay 10% of your income each month until the loan is paid off, but some smaller business can pay as little as 1%. The main advantage is that the payments flow with your income. If you have a slower month, your loan payment will be less. With wise investments, you can increase your income to a point that you are earning more each month, even with the amount you are paying to the lender.

On the other end of the spectrum, you could get working capital financing in the form of a line of credit. Similar to a credit card, you only pay interest on the amount of money that you spend, instead of the entire amount borrowed. This type of financing is great when you do not know what you need to spend money on exactly or if there are numerous small expenses rather than one large one. Flexibility is the primary attribute of getting a line of credit.

There are other types of loans besides the ones listed here, but these are the most common. It is very wise to thoroughly research all your options before deciding what working capital financing is best for your situation. If it is handled properly, borrowing money could be what breathes new life into your company.