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What You Need to Know About Working Capital Loans

Regardless of your company’s assets, line of credit or collateral available, having enough cash on hand to run your business is key to successful operations. Though it is good to have orders coming in and bills waiting to be paid, it is essential to have cash on the ready to cover costs associated with day-to-day operations.

In manufacturing, this involves covering the costs associated with converting raw materials into finished, sellable products. In trucking and transportation, it might mean paying for fuel, maintenance, and drivers to transport those goods in a timely process. Though each industry differs, without working capital, you won’t be able to sustain business operations for long.

Cash flow cycle can be described as the following, for instance:

  1. A business needs cash to acquire additional resources (inventory, assets, space, equipment, etc.),
  2. Cash resources are used to be put to work, create goods or provide services.
  3. Goods or services are sold to customers.
  4. Customer who pay in cash = good. Others have a net 30 – 90 pay period; therefore, these funds are eventually used to settle liabilities for the business.
  5. This cycle continually repeats & shows why working capital is sometimes needed.

Keep Cash Flow Moving with Working Capital Financing

That’s why even when times get difficult and available cash is in shorty supply, companies will need to do what they can to secure a working capital loan. Similar to other types of term bank loans, working capital financing enables you to get the cash you need to pay for your day-to-day operating expenses. The bank or lending institution may ask you to provide them with the specifics as to what you need the working capital loans for. For instance, if you are in manufacturing, you might need to show them the orders and explain you need the working capital funding for the purpose of order fulfillment.

Factoring Companies Also Offer Working Capital Loans

Though you can apply to get working capital financing from a standard bank, it will generally require you to put something down as collateral and more than likely will run a credit score and background check. As a result, these sort of business loans can take several weeks or longer due to these assessments and bureaucratic processing. However, many alternative lending institutions including merchant cash advance companies or invoice factoring companies can provide you with a working capital loan in much less time.

If your cash flow is drying up and you don’t have the time to wait for bank processing, obtaining funding from an account receivables factoring company, like Business Factors & Finance, might be a good alternative for you to consider. They can charge more than banks, but you’ll get your money right away when you need it.

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About the Author:

Since 1991 I specialize in Invoice Factoring, PO financing and ABL facilities. I currently work internationally with companies in the US and Canada via our internet marketing division. Specialties: Accounts Receivable Factoring and Payroll Funding for Manufacturing, Oil & Gas, Telecommunications, Wholesale Trade Distribution, Staffing and Transportation. I always enjoy helping companies rise to the next level of success.

View More Posts By Robert Bernfeld