When a small business needs money to cover everyday operations, they have a few options, including a working capital demand loan and a business line of credit they can turn to.
What is Working Capital?
Working capital is officially the difference between a business’s current assets (such as cash, accounts receivables, and inventory) and its current liabilities (accounts payable and the company’s debts). In practical terms, working capital is the money a business has on hand to pay everyday operation expenses such as payroll, rent, and utility bills.
For small businesses, the state of their working capital is a crucial indication of the company’s financial health. Too little working capital and the business could have trouble staying afloat. But, having too much working capital on hand could mean the company doesn’t have enough employees, isn’t purchasing buying enough inventory, or putting enough money back into the business.
When Would a Working Capital Demand Loan Be a Good Idea?
A working capital demand loan (WCDL) is a short-term loan a business may take out to get through a slow sales season or until large outstanding invoices are paid. They are typically term loans with fixed interest rates and fixed payments. You can find working capital demand loans at almost any lending institution, including banks, credit unions, and online lenders. The interest rate for a working capital loan is tied to the business’s credit rating and sometimes the business owner’s personal credit score.
Working capital demand loans are meant for short-term, not long-term financing needs such as for property acquisition, massive product development, or expanding the business overseas. Capital requirements for huge projects need more funding than a working capital loan provides—plus, the company needs a more extended repayment schedule. Because working capital demand loans are funded and repaid quickly, you can expect higher interest rates than a long-term loan.
Is There an Alternative to a Working Capital Demand Loan?
A business line of credit is like a working capital demand loan in that it allows the business to use flexible financing when needed for everyday business expenses. The differences may be few, but they are essential to understand.
- Business credit line borrowers have access to a fixed amount of funding; however, they can borrow as much (or as little) as they want up to the credit limit.
- While working capital demand loans have a fixed interest rate for the lump sum they borrow, business credit line borrowers only pay interest on the money that’s been withdrawn—and pay nothing once the withdrawn amount has been repaid.
- Business credit lines are more flexible on where the money can be spent, while some working capital demand loans limit fund usage.
A business line of credit functions as emergency working capital, ready to tap when a funding occasion arises. Like credit cards, business credit lines are revolving credit. Borrowers are approved for a preset lump sum and can use any amount of the money (up to the credit limit) for any need. Then, borrowers make payments until the money is paid back and only pay the interest rates on the borrowed sum. Also, like business credit cards, once the money has been repaid, it is available to borrow again. Although some small business owners use cash advances from business credit cards to get through the rough patches, interest rates on business credit lines are usually lower, saving your business money.
Why Contact Financing Solutions?
Financing Solutions is an alternative lender offering an easy application process (it takes less than two minutes to fill out) and requires no collateral or documentation for a written offer letter. Other alternative lenders have a much longer application process and can be pretty expensive.
The founders of Financing Solutions have started and grown several companies together, so we understand how important it is to keep costs low. That’s why we don’t charge you to set up the credit line, and there are no maintenance fees. We don’t ask for personal guarantees, and applicants can receive a no-obligation offer letter the same day. We make approval decisions based on our decade of experience working with small businesses. Find out today why we have five-star ratings from the Better Business Bureau and Google. Also:
- There are no costs to set it up or keep it in place
- The easy 2-minute application online application
- If approved, you’ll receive a same-day, no-obligation offer letter
- The fastest setup, 48-72 hours
- Once you have the line of credit, requests for funds are wired to your bank in minutes
- You can use your line of credit whenever needed
- Inexpensive when used (low fees)
- There are no restrictions in place or collateral required
- No personal guarantee is required, either
- Financing Solutions is a leading provider of lines of credit
- We are a reputable company with an A+ & 5-star rating
- You can pay off the line whenever you are ready
- The credit line is easy to renew and renews yearly
- You have a secured account portal access 24 x 7
A line of credit is an excellent funding resource that’s available whenever your company needs it, without the heavy burden of term loan requirements. If you want to see if your small business would be approved and for how much, please fill out the no-obligation, 2-minute line of credit application here.