As a small business owner, there are many situations where you might need working capital financing. Essentially, working capital is the amount of liquid capital you have available to handle day-to-day expenses—and almost every entrepreneur experiences a time when that capital just isn’t enough to cover them. You may need working capital financing when:
You receive a large order from a big client, but won’t be paid until the product is delivered. However, you need working capital to buy the materials or inventory to fulfill the order.
You’re planning to expand your business. Whether you are hiring additional employees, expanding to a new geographic or demographic market, or moving to a bigger physical location, expansion requires additional working capital.
You suffer from a cash flow shortage. If your business is seasonal, a big client is slow to pay or you face unexpected business expenses, working capital financing can help get you over the hump until business picks up again and your cash flow is back to normal.
Where to Get Working Capital Financing
You have many options for working capital financing. Here are some to consider.
Term loans
When most people think of business financing, they think of term loans. These loans are made for a specific period of time or “term”—hence the name. You can choose from short-term loans, which typically require repayment within 18 months, or longer-term loans, which may have repayment periods of up to 10 years. Term loans are useful if you require a substantial amount of working capital financing, but they can be difficult to obtain.
Line of credit
If you’ve ever gotten a home equity line of credit on your house, you’re familiar with the concept of a line of credit. A business line of credit works the same way: The lender approves you for a certain amount of credit, which you can draw upon when you need it. You don’t incur interest charges or need to make payments until you actually draw from the credit line. This is a very flexible solution for working capital financing needs.
Credit card financing
Depending on the limits of your business credit cards and the amount of working capital you need, a business credit card can be an easy solution to your problems. If you already have the card, there’s no need to apply for anything, and you can pay off the balance in amounts that work for you. Of course, the downside is high interest rates and the possibility of additional fees (and damage to your credit rating) if you miss a payment.
Invoice financing
In this type of working capital financing, a lender gives you an advance on your outstanding invoices so you don’t have to wait for customers to pay you. This solves the problem of slow-paying customers.
Invoice financing is similar to invoice factoring, but there are some important differences. For instance, if you use Fundbox’s invoice financing services, you receive 100% of the amount of your invoices, while factoring companies typically advance just a percentage of your invoice amount. Fundbox also won’t interfere in your relationship with your clients, so they’ll never know you’re using a financing solution.
With Fundbox, you get your money immediately (typically as soon as the next business day), and repay the advance over a 12-week or 24-week period—your choice. You can even pay it back early without any penalties if you want to. There’s no complicated application to complete—just sign up for a free Fundbox account and connect your accounting software. Once you’re approved, just pick the invoices you want to advance, and you’re all set.
This post was originally published on 4 Working Capital Financing Solutions for Small Businesses on Fundbox.- Fundbox - Fundbox Blog