Types of Working Capital - What Are Your Options?

Biphoo

3 Oct 2017

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Working Capital Options For Your Business

If you have been searching around online, you’ve probably noticed a lot of different Providers of Working Capital that are vying for your attention. Meanwhile, you may have heard on the news that many banks, finance companies and other “non-bank” lenders are not lending to all businesses, and especially small businesses like they were prior to the so-called credit crunch. So I decided to come up with this page to try and decipher the difference between all the offers being shown, and what types of capital alternatives might be available if you don’t qualify for the best products out there. So, without further delay, I’ve listed some options that may be useful in determining the right way to go if you need working capital for your business.

Credit Express Business Loan- This is an alternative business loan for those businesses that may not qualify for an SBA loan and Need Working Capital. Interest rates are 30-50% cheaper than their competition, the merchant cash advance. This loan is also designed for those businesses with a healthy cash flow but who may have had some credit problems in the past. As of this writing, owner credit scores down to 500 are allowed. The loan, while not as cheap as an SBA loan, is much more affordable than a cash advance and doesn’t feature any upfront fees or requirement to switch credit card processors or a business plan for approval. Time to get funds is usually 7-10 business days

Merchant Cash Advance- The merchant cash advance is a fairly new lending “animal” out there. Essentially, this is NOT a Business Loan, but rather, a cash advance. As such, it is not regulated by many states as a “loan” or subject to various laws regarding maximum interest rate allowable. The bottom line? A merchant cash advance can get money relatively quickly with low documentation required, but you will pay upwards of 50% or more on the money, as well as upfront fees to apply. You may also be required to switch credit card payment processors. The advance works by basing any advance on the future amount of credit card sales your business will be doing, and then purchasing these receivables. Needless to say, if your business is a cash business and you do not accept credit cards, this will not work for you. Funding usually occurs within 7-10 business days.

SBA- backed Loan- Getting a Small Business Loan from a commercial bank, usually backed by the Small Business Administration, is the best way to go. Why? Because the rates and terms are usually the most affordable for your business over the long term. Payments and rates are some of the best available out there, and the Obama administration has made it more attractive for banks to utilize the SBA by increasing their guarantee. With that said, it is still difficult to qualify for an SBA loan, especially if your loan amount is high. You will also need a large amount of documentation such as business plans, financials, etc in order to have your loan considered. Click here for a Free Guide to SBA Loans. Also remember that your time to get the money may be at least 45 to 60 days, so plan ahead

Home Equity- In the past, small business owners used this option to get working capital for their businesses. Unfortunately, it is much more difficult for an entrepreneur to get this type of financing, especially if there are credit issues with the business that have bled over onto a personal credit report. Another reason this option is less certain than it used to be is because of the fact that many homes have lost a significant amount of value in the last 3 years, meaning there is less equity to make a new loan. However, if you think you have a lot of equity and good to great credit, this may be a real option for you. Time to get funds using this method usually be at least 30 days, if not more. Also, you may have to pay out of pocket for an appraisal on your property.

Commercial Mortgage- If you happen to own the building that your business resides in, this may be an excellent option. However, it is important to remember that having equity is the most important piece of the puzzle for business working capital loans. Credit terms for those with tougher credit are usually easier to come by. However, keep in mind that many commercial buildings have lost a lot of value, so equity may be an issue. Time to get the funds is usually 60 days or more and requires an appraisal.