What Is A Working Capital Loan?
There are numerous types of working capital loans, the most common being a short-term working capital loan. The amount can be as low as just a few thousand dollars since it is based on the daily and/or monthly costs of running your business. You would have as little as four months to pay off the debt in full, and payments can be collected on a variety of frequencies.
Potential borrowers with substantial credit card sales would be wise to consider a merchant cash advance. This type of working capital loan supplies a lump sum in exchange for a fixed percentage of daily debit and/or credit card sales, until the balance is paid back. The amount is based on the amount of debit and/or credit transactions you are projected to perform over a set period. Payments are only deducted when you make sales so as not to impact your cash flow negatively.
Another type of working capital loan we offer is accounts receivable factoring, which is tailored for borrowers with unpaid receivables or invoices. After evaluating the entity that owes the borrower, we purchase the unpaid receivables for a discount and then pay the borrower right away. It is then our responsibility to collect the payment from the customer or client. Once the payment is collected, the borrower is paid whatever was missing from the first payment, minus a percentage. The discount and percentage are the fee, similar to interest on a traditional business loan.
What Do I Need A Working Capital Loan For?
Short-term working capital loans are best suited for short-term investments or cash shortages. In regards to the latter situation, funding is usually only approved if the shortage is temporary and beyond the borrower’s control. Short-term working capital loans also provide the means to take advantage of sudden opportunities that would eat up the majority of operational funding. Without this option, smaller businesses would not be able to accept lucrative, lengthy projects since they would have no money to pay their bills or employees until completion.
A merchant cash advance, on the other hand, is ideal for mid-term investments. Examples include a marketing campaign, bulk inventory purchase, a new piece of equipment, or a batch of seasonal hires. All are projected to increase revenue, but in a few months’ time. Many UCS clients take out merchant cash advances when business is slow, since they can use this period to carry out long-term investments and then pay off the debt when revenue increases.
Accounts receivable factoring stabilizes cash flow that became unstable due to payments from clients or customers that are yet to come in. Rather than waiting well over a month for payment, the borrower is paid by the business lender immediately after the receivable is purchased. The borrower can then use the funding for just about anything. A common function of accounts receivable factoring is signing a deal with a new client that the borrower normally could not afford because of postponed compensation. Apply now to see how much you qualify for!