How to Find the Best Working Capital Solution

Author: Robyn Parets | August 8, 2016

If you own a small business, there’s a good chance you will need working capital financing at some point.

Why? Working capital helps you pay for daily business costs, like payroll, marketing expenses, inventory, and any other bills. If you’re short on cash to cover these costs, additional funding can help you both meet these obligations and invest in your future expansion.

So where should you go for funding if you don’t qualify for a bank loan, feel uncomfortable raising money through crowdfunding sites, or don’t have a relative ready to give you additional capital?

Luckily, there are many other alternative financing options and lenders available. Although you’ll need to thoroughly research the best financing options for your particular small business, we’re here to help you cut through the clutter with three of our top picks for working capital financing.

3 Working Capital Financing Options

Take a look at these popular options.

Working Capital Options

  1. Working Capital Solutions Through Short Term Financing

    Alternative lenders (like Fundbox) can give you access to capital, faster than most traditional options like SBA or bank loans.

    These loans typically offer a lump sum that you’ll pay off—plus interest—over a set amount of time, known as the “term”. Expect your interest rate plus loan fees, also known as the APR (annual percentage rate), to range from eight percent up to about 45%.

    Although the cost to fund is usually higher than most traditional bank loans, the online application and funding process is often fast and seamless. Keep in mind that typically it is not the best idea to rely on a loan as a working capital solution to meet your payroll and rent.

    However, if paying your daily bills doesn’t leave you any wiggle room to grow your business, a term loan may offer a viable solution, particularly if you need a chunk of money to expand your product line, open a new location, or hire more employees.

    It’s also important to note that every alternative lender has different funding criteria. For example, for most working capital loans through alternative lenders, you’ll need to show that you’ve been in business for at least four months and have relatively stable monthly sales and usually a minimum personal FICO score of about 620. More established lenders may even have you show that you’ve been operating for at least two years and have a minimum of $200,000 in yearly revenues with a minimum FICO score of 640.

    To learn about various term loans, you can start by seeing which lenders are a good match for your business at a third-party site like Fundera.

  1. A Business Line Of Credit As a Working Capital Solution

    A line of credit is another viable option for working capital financing. You can draw on a line of credit as needed and, similar to a personal credit card, you only pay interest on the funds you use.

    You’ll typically pay a lower APR on a line of credit than a term loan, and many small business owners enjoy the flexibility of having the cash available when and if they need it. You can also use some of your available line of credit, pay it back, and then tap into additional funds again down the line.

  2. Use Invoice Financing As Your Working Capital Solution

    Waiting for customers to pay you so that you can pay your bills, meet payroll, and cover your daily costs can be a thing of the past if you begin clearing your outstanding invoices with immediate advances.

    In fact, when it comes to working capital financing, invoice advances through Invoice Financing may be just what you need to keep your business chugging along. Invoice advances can also prove to be the most affordable working capital financing option for your small business, as you won’t have to pay high interest rates and you can get paid immediately instead of waiting up to three months for customers to pay you.

Which Working Capital Solution works for your small business?

Small business owners have a lot of options to evaluate when it comes to working capital financing. We’ve only just scratched the surface! It’s also worth noting that most business owners choose to use not just one, but a mix of financing solutions, depending on how much funding they need, how soon, and how they plan to use it.

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