As a small business owner, you likely find yourself juggling multiple tasks on a daily basis. While it can be challenging to prioritize your responsibilities in these situations, financial management should be at the top of your list, particularly working capital financing. 

Success for small businesses often depends on being able to effectively balance resources with unexpected expenses, while also capitalizing on growth opportunities. Having access to working capital enables you to go after those opportunities while ensuring enough funds are available to cover daily operating expenses and cash flow needs.

Whether your company is just getting off the ground or you are looking to expand, this guide will help you understand your options, providing key insights so you can make the best financial decisions to help your business prosper.  

Ready to take your business to the next level? Contact Midwest Business Funding today at  +13176063595 or fill out our web form to learn more.

Understanding Working Capital Financing 

Working capital is essentially a measurement of your business’s financial health. Specifically, it is the difference between your current assets — i.e. cash, inventory, and accounts receivable — and your current liabilities, such as short-term debt, accounts payable, bills, payroll, and other financial obligations. 

In other words, working capital is the amount of money you have left over for daily operations, unexpected expenses, and anything else you might want or need to help your business. When you have a good amount of working capital, your business can run smoothly, however, when working capital is low and there aren’t enough funds, you can start running into several issues that can hinder business growth and success. 

This is where working capital financing comes into play. Working capital financing refers to short-term financing loans that are intended to provide businesses with the cash needed to cover regular operating expenses. While most working capital financing options offer quick funding and short repayment periods, they can also include lines of credit and term loans that can be used for long-term financing. 

Types of Working Capital Financing

There are a few different types of business working capital loans or financing options that can help when you are in a pinch and need to boost your working capital. The most common types include:

• Term loans: These types of loans are more traditional and are the most common form of working capital financing. With term loans, you get a straightforward repayment process with fixed payments over a set period. 

• Business lines of credit: This option provides a revolving line of credit that you can draw funds from as needed. This is a more flexible option as it allows you to draw cash and make repayments multiple times so long as you are within the pre-approved limit. 

• SBA loans: Small Business Administration loans are government-backed loans that are easier to qualify for and come with larger limits. 

• Invoice factoring: With this option, you are given a loan that is secured by your unpaid invoices. A factoring company will give you the money upfront so you don’t have to wait for the payments, they will then collect the payments from your customers as their invoices are paid. 

• Merchant cash advances: This is a good option if a significant portion of your business income comes from credit card transactions. Merchant cash advance companies will provide you with the cash you need while taking an agreed-upon percentage of your credit card sales to repay the advance. 

Pros and Cons of Business Working Capital Loans

Small businesses often have fewer resources and capital to work with, which can make obtaining a working capital loan an ideal option to help them stay afloat. That said, when making any sort of big financial decision, it’s important to weigh the pros and cons to avoid potential risks.  

Pros:

• Quick funding
• Flexible fund allocation
• More inclusive than traditional loans
• No need to give up equity to secure funding
• Limited restrictions on how the funds are used

Cons:

• Business collateral may be required to secure the loan
• Higher interest rates
• Short-repayment terms with higher monthly payments
• Not suitable for larger-scale purchases and investments

How to Finance Working Capital 

You can finance working capital through various lenders, including credit unions, online lenders, and banks. Banks and credit unions are good for low interest rates, however, they may be harder to qualify for as a small business as they will have strict revenue and credit requirements.

If you are finding it hard to qualify with a bank or credit union, there is often a wide variety of online lenders with more flexible requirements. Just remember that this flexibility comes with a higher APR. 

In any case, the application process for working capital loans is typically straightforward. Most capital finance lenders will require a single-page application along with proof of income, such as bank statements and tax returns. 

Keep in mind that SBA loans are also an option. These loans are good for larger borrowing amounts with less strict eligibility requirements. However, the application process is extensive and they have long funding and approval times. 

Small Business Financing Options: How a Working Capital Loan Can Work For You

As a small business owner, there are many ways working capital financing can benefit your company — and remember, most working capital lenders don’t have restrictions on how you use your loan, so you can use it in whatever way seems most beneficial. 

A working capital loan can help you:

• Invest in growth opportunities
• Fill gaps in cash flow needs
• Expand your staff headcount
• Cover payroll
• Finance new equipment
• Pay for maintenance and repairs
• Add inventory or restock for peak seasons
• Finance new or seasonal products or services
• Cover cash flow during the offseason or times of low traffic
• Ensure you have enough money on hand for unexpected expenses
• Cover daily operating expenses
• Cover bulk purchases so you can take advantage of offers and discounts

All in all, a working capital loan is a great small business financing option if you need short-term, flexible funding. This type of funding can make a significant difference in the success of your small business, allowing you to get by when money is otherwise tight and can keep you from falling short and sputtering along when unexpected costs arise. 

Working Capital Solutions for Small Businesses

Navigating finances as a small business can be stressful and overwhelming, but it doesn’t have to be. Working capital loans can give you the freedom and flexibility to do more instead of simply scraping by, which can hold you back.  Stop sweating the small stuff and start making things happen. 

At Midwest Business Funding, we make small business funding simple. Our no-strings-attached, client-focused approach makes applying for working capital funding a no-brainer. We are committed to helping small businesses like yours secure the financing they need to not only survive but thrive.  

Have questions about getting started with Working Capital Financing? We’re here to help! Contact us today at +13176063595 or fill out our web form to learn more about how we can support your business’s growth and financial success.