Working Capital
When a business needs extra funds to cover operational expenses, it may want to secure a working capital loan. These loans are designed to be as broad and flexible as possible so that the money can be used for a range of business expenses. Working capital can take various forms, including a term loan, a merchant credit card, or a line of credit.
Lean More About Working Capital
Some loans are targeted to cover a specific purpose, such as buying new equipment or real estate. However, in many instances, a business might need a loan to help maintain positive cash flow and cover various operational expenses. These multi-purpose loans are called working capital loans and offer greater flexibility than other forms of funding.
Working capital loans can take several forms, including
Merchant Credit Card
The company can borrow and repay the balance over and over again. As it builds a history with the lender, the credit limit will typically increase.
Credit Line
A lender issues a set balance that the borrower can withdraw from as needed. Once the full amount has been taken, the account closes. Credit lines can be secured using collateral or unsecured, relying instead on the borrower’s creditworthiness
Term Loan
Many banks offer commercial loans that aren’t tied to a specific purpose. In some cases, a term loan provides lower interest rates and higher upfront payments
Loan Highlights
Working capital financing offers flexibility for businesses that need a cash infusion
Any type of loan that is not tied to a specific purpose (i.e., equipment) can be considered working capital
Examples of this financing can include merchant credit cards, lines of credit, commercial term loans, and factoring
Depending on the option used, it can be easy to qualify for a working capital loan
Equipment Financing Pros and Cons
Most businesses can get financing relatively quickly
Funds can be distributed in various ways, depending on what works best for the company
Working capital is highly flexible as it can be used for operational expenses or debt consolidation
Interest rates may be relatively low, depending on the situation
Merchant credit cards and lines of credit can have high interest rates
If a company borrows too little at once, it will need to secure another loan
Working capital is not suitable for large-scale purchases, such as real estate or high-value equipment
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