Working capital loans provide short-term funding to cover expenses without needing collateral up front.
Working capital, also known as operating capital, is the cash available for the day-to-day expenses of running a business. It represents a company's efficiency and short-term financial performance. It's vital to have cash flow to cover payroll, inventory, marketing campaigns and any other financial expenses that occur within daily operations. Businesses should focus on maintaining enough operating capital to sustain growth.
It can be challenging for small businesses to obtain small business loans for working capital from traditional lenders who typically require extensive collateral or other guarantees that the money will be repaid. In addition, it is becoming more common for traditional lenders to require substantial personal guarantees, such as the business owner's home or other highly valuable collateral.
A working capital loan allows you to continue your daily operations should you encounter untimely cash flow gaps, seasonal lulls or need to finance new equipment. By utilizing working capital loans, you can invest in your business so that you can ultimately cover your operating expenses.
A working capital loan is one of the easiest ways to harness the potential of your business. These types of small business loans often act as unsecured debt, so they don't require you to provide traditional collateral. They can be a great solution for businesses that are small, just starting out, don't have traditional collateral or are simply in a period of low cash flow.
Working capital is calculated by subtracting current liabilities from current assets.
CURRENT ASSETS - CURRENT LIABILITIES = WORKING CAPITAL
Even a business that has billions of dollars in fixed assets will quickly find itself in bankruptcy if it can't pay monthly bills. Under the best of circumstances, poor working capital leads to financial pressure on a company, increased borrowing and late payments to creditors – all of which result in a lower credit rating. A lower credit rating means lenders charge a higher interest rate on money borrowed. Applying for and using a working capital loan when you need it most can keep you in business when shortages in resources occur.You can maintain ownership of your business.
If you were to receive funding from an equity investor, you would likely have to give up a generous percentage of your company in return. In turn, you are giving up a portion of your decision-making power. If you borrow funds from the bank or another financial institution, you are obligated to make the agreed-upon payments on time – but that's where your obligations end. You can run your business without outside interference.Collateral is not always required.
In general, there are two types of loans: secured and unsecured. Working capital loans come in both types, although many are unsecured. Unsecured working capital loans are given only to those small businesses that have a very good credit history and/or have little to no risk of default. If you qualify for an unsecured loan, you won't need to put up your business, inventory or other assets to secure the loan. Of course, paying the loan back is critical given the costs of defaulting.Shorter terms are ideal for short-term problems.
Working capital loans are designed to infuse money into your business for the short term which is ideal if your need is also short term. You won't have to plan for years of monthly payments to pay back what you borrowed.Can you use the money however you see fit.
Banks and other lenders have few – if any – restrictions on how you use the money. Whether you need to maintain your operations or make an investment, how you use the funds is your decision.The application process is straightforward.
Applying for a typical business or personal loan can take up a lot of your valuable time and may not end in an approval. It often includes extensive paperwork, a lengthy approval process, putting up collateral, making fixed monthly payments and having restrictions on how you use the money. A working capital loan available online is a great way to access funds without the long-waiting period hassles associated with a traditional bank loan. Qualification is generally determined within a few days, if not sooner, of applying resulting in a faster turnaround when compared to traditional lenders. This makes online working capital loans more appealing for those who need quicker access to capital.
Online lending platforms like Kabbage can be a great way to access capital quickly and efficiently without the extensive documentation and application processing time of traditional loan providers. We offer ongoing access to working capital that can help you cover routine businesses expenses. Through the simple, online approval process, we look at your business performance in real time to determine the amount for which you qualify.
Qualify for a line up to $250,000
Accessing small business funding shouldn't be complicated or time-consuming, so Kabbage developed a simple way to get up to $250,000.2.