How Does a Working Capital Loan Work?
So, how exactly do working capital loans work? Let’s take a closer look.
What is a Working Capital Loan For?
Most business loans, such as business term loans or equipment financing, are meant to cover a significant, long-term investment. Working capital loans, on the other hand, are for smaller, short-term investments and everyday operations. Since the investments are smaller, it may take longer for business owners to see any significant ROI. That’s why the fixed payment schedule of a business term loan doesn’t work in these situations. When you choose FDF, we’ll work out a repayment schedule that will work best for you and your business.
Now, the term “working capital loan” refers to a very broad category. Within this category, there are several sub-categories. Below are some of your working capital loan options.
Short Term Working Capital Loan – the most common choice. If you only need a small amount of funding, – say a few thousand dollars or so – then this type of funding could serve you well. This business loan is based on the daily and/or monthly costs of running your business. You would pay back your business loan in as little as a few months, and the frequency of your repayments can vary depending on your situation.
Merchant Cash Advance – Just like a term business loan, a merchant cash advance provides you with a lump sum of money. Unlike a term business loan, however, this type of financing doesn’t have a fixed repayment schedule. Instead, you pay back your merchant cash advance with a portion of your credit and debit card sales. If your business has consistent credit and debit card revenue, then this option may be the best choice for you.
Accounts Receivable Factoring option. This is often the best choice for borrowers with unpaid invoices and receivables. We can purchase your unpaid receivables for a discount and then pay you, the borrower, right away.
Working Capital Line of Credit – This is a more flexible option that gives you access to a pool of funds, without having to borrow a lump sum that you’ll have to repay interest on. You can use as much or as little as you need, only when you need it, and pay interest on what you borrow.
SBA Loans – These loans are guaranteed by the Small Business Administration for those who are approved, and meant for anyone looking to refinance working capital needs.