Working Capital

Whether you need to make payroll or pay other operational costs, a working capital loan could be just what your business needs to keep running smoothly.

Working capital loans typically carry flexible repayment terms and are designed to help businesses cope with seasonal dips in revenue, unforeseen maintenance costs and inventory management needs.

How does a working capital loan work?

Working capital small business loans can be used for virtually all operational expenses, including paying day-to-day bills, vendor invoices and existing debt payments. They are generally short-term loans and are limited to amounts based on a percentage of your business revenue.

Seasonal industries, capital-intensive businesses and companies that must carry large amounts of inventory are all subject to short-term expenses that can disrupt business cash flow. A working capital loan for small business may be an ideal solution for these types of enterprises.

What are my options for getting a working capital loan?

Obtaining a working capital loan for your business requires research and an assessment of your finances. It’s important to keep capital liquidity (the amount of cash you have on hand) top of mind because this is your working capital; the difference between your assets and liabilities. You should only borrow what you need; don’t be stuck with paying long-term interest for a short-term financial shortfall.

There are several different types of working capital loans:

• Installment loans are a lump-sum payment to borrowers, with payments due plus interest in fixed installments.
• Small Business Administration (SBA) loans are government-guaranteed loans with several options for working capital financing.
• Lines of credit are revolving credit accounts that allow businesses to draw what they need, up to a maximum credit amount.
• Fixed rate or fixed fee loans are lump-sum loans that are repaid in regular, fixed installments with a flat fee instead of interest.

Working capital loans for small business can help startups and early-stage companies overcome growing pains. They can also be useful for mature businesses where cash flow is unpredictable.

How do I get a working capital loan?

There are several options for getting a working capital loan; finding the right one for your small business takes time and research.

Commercial banks offer many different small business loan products that can be used for working capital as well as other business investments, such as real estate or equipment. Most financial institutions offer online pre-screening applications for working capital loans.

Alternative lenders, including mission-driven Community Development Financial Institutions (CDFIs), can offer working capital loan rates and terms that are competitive with banks. They often allow for greater flexibility when business investments are tied to local job growth.

Connect2Capital can help connect you to a working capital loan for your small business.