Working Capital Loans
Business owners face multiple challenges in their day-to-day operations that hinder their success. Expansion, payroll, inventory purchase, marketing are just a few. Most entrepreneurs agree that the bulk of their frustrations could be overcome if they just had access to more working capital to increase their cash flow.
Given where the economy is at the moment, traditional banks are denying business owners access to small business loans as a result of the rigid guidelines they have in place. Banks and credit unions are holding on tight to their funds, and even with the government’s call for them to ease their guidelines nothing seems to be changing.
To qualify for a traditional business loan, your credit score must be impeccable, any derogatory items and you are done. Banks require collateral, which most businesses do not have. Those that have tried applying through the banks for SBA (Small Business Administration) loans have been scared off with the mounds of paperwork required to submit their applications for consideration.
However, there is hope for business owners through alternative financing. These come in form of working capital loans. These working capital loans provided by alternative financing sources could be short term micro business loans, invoice factoring or merchant cash advance. The micro business loans are true business loans, with up to $250,000 available. They are usually based on the cash flow of the individual business. The repayment terms of these loans allow for fixed payments and terms. The loans are not based on credit card receivables.
For businesses with fluctuating revenues, the merchant cash advance option is considered more favorable as it allows business owners to pay back based on a percentage of their credit card receivables. The merchant cash advance, also known as business cash advance is not a loan. It allows a party to purchase a merchant’s receivables with the merchant paying back an agreed upon amount over time.
The third option, invoice factoring, is preferred by business owners who wait on clients to pay on issued invoices. A factor company would pay a business owner up to 80% of the outstanding invoice amount within 72 hours, so the business doesn't get inconvenienced with the lack of cash flow. Once the invoices are paid in full to the factor company, it pays the remainder to the business and keeps a small fee. Businesses with a healthy cash flow have several options when it comes to obtaining financing or working capital, as long as they know where to turn.