A working capital loan is a loan used by businesses to cover daily operational expenses (such as rent, company payroll, utilities, etc.) because your cash flow is tight and you are short on capital. There may be times where your business is in need of more capital to stay afloat or your business may have a large opportunity on the horizon that will tie up some of your cash – this is where a working capital loan may come into play.

An example of a working capital loan:

Suppose your company’s current capital and human resources incur $1200 in monthly expenses from day to day operations. The monthly revenue of your company, however, is only $700. In order to meet monthly expenses, your company takes out a working capital loan for $500 until its monthly revenue reaches the $1200.

Considering small business working capital loans are one of the most flexible options of financing available to small businesses, the number of ways it can be used may surprise you. While there are too many ways to name what a working capital loan can be used for, here are a few of the more common needs your business may come across in day to day operations:

New location – Opening a second, third or fourth location is very beneficial for business because of the increased revenue and presence.

New Employees/Staff – Depending on the nature of your business, this can mean new business hours and better customer service.

Inventory – Inventory is crucial for business and working capital can help with new products or the existing products.

Equipment– Having the latest equipment and up to date technology will make sure everything runs smoothly and efficiently.

Working Capital – At times a business can have slow cash flow and you may need funding for day to day operations, like payroll and marketing.

Taxes – Self-employment taxes, payroll taxes, end of year taxes, local taxes or excise taxes; basically any tax bill the company may have.

System Updates – Making sure your business has the latest POS system or inventory software can really help with efficiency and customer satisfaction.

Remodeling – Does your business need a facelift or rebranding? Securing working capital can help you turn things around and thrive.

A small business working capital loan is one of the easiest solutions for business owners. It can assist with helping businesses harness their full potential. Working capital loans act as unsecured debt, which means you as the business owner will not need to provide collateral as with traditional loan methods. This has many advantages for businesses that are in the early stages or businesses that are low on capital.

As a business owner you might turn to a bank to borrow working capital. However, there are challenges to getting a bank loan:

• Banks require extensive documentation to demonstrate your businesses’ ability to pay back the loan.
• Decisions can take weeks or even months, with plenty of red tape.
• Applications are too often declined, wasting your valuable time and at a cost of lost business for your company.

If your loan is approved, the bank might restrict the use of the funds or require collateral as guarantees for repayment.