When your business is growing and moving forward, it is a really good thing. However, in many cases, such growth can cause some tricky financial situations. As any business owner knows, you have to invest some money to grow your business. If your cash flow stops, it can seriously hurt the forward momentum your business has. Unfortunately, this is a common occurrence. That is why every business owner needs to know about working capital loans.
What Is This Loan?
A working capital loan allows you to borrow against the capital you have in your business. Essentially, it is allowing you to tap into the capital you have that is tied up. As your business grows, this is likely to happen. You may have invoices out that aren’t due for a while. You have probably invested in equipment needed to keep up with the increased demand. You have very little cash free to keep things going and to pay for regular expenses, like inventory and employee wages. However, if you don’t pay for those things, everything stops. This is where working capital loans come in. You get the money you need to handle those expenses and keep money coming in.
The benefits of this type of loan over a more traditional bank loan are numerous. To begin with, this is a short term loan, so it won’t be hanging over your head for years. You also can borrow money without having to detail what you will be using it on. The bank just won’t ask. Finally, this type of loan is really just letting you borrow your own money. It is based off of the capital you have in your business that just isn’t accessible right now.
How It Helps
By getting working capital loans, you are able to access the capital in your business when you need it. You get the money to keep things moving and growing. This really is the type of loan that is used to get over a rough patch where you know you will have the money in the future but just need it now. It is ideal if you have money coming in soon but not soon enough. You can use it for inventory, payroll, maintenance, marketing — use it for what you need to get the business through until money starts rolling in again.
Working capital loans are often the perfect solution for a growing business. There are always bumps in the road as a business expands and this type of loan is a great way to get over those bumps and to move on to a bright future.