Every business needs cash flowing through its bank account on a regular basis. You need enough money to cope with daily expenses and to plan for future growth plans and commitments.
Without the ability to have access to fast working capital loans for small businesses, there are many companies that would run into cash flow problems. A lack of cash means that even a successful business might struggle to survive a few bumps in the road.
That’s why working capital is so important.
Funding Everyday Expenses
The fundamental purpose of a working capital loan is to give your business enough cash to pay typical everyday expenses such as payroll, suppliers, and rental payments, for example.
If your business is generating enough income to meet all of these expenses there is still the potential for cash flow problems if your invoices are not paid quickly enough to give you the money you need at certain points.
That is where a working capital loan comes into play.
You might have a cyclical business, for instance, where you have lots of orders through the summer months but less demand for your products through the winter period. If you know that you will have periods where cash flow is going to be tight you can anticipate and resolve this issue by arranging a working capital loan.
A Short-term Solution
It is important to understand the distinction between funding your short-term cash flow requirements and arranging finance for future expansion plans.
A working capital loan is intended to give you the flexibility to gain access to the cash you need for short-term commitments. It is a product that is designed to be highly flexible and give you rapid access to the funds you need to meet existing current cash demands.
You will often find that providers of working capital loans are online providers with a less arduous and intense approval procedure than you might be subjected to by your bank. Mainstream banks tend to be less flexible in their approach and are more geared towards longer-term funding solutions.
It’s horses for courses. In other words, a working capital loan is designed to provide a quick fix to your cash flow issues. It is not a financial product that is designed to be used for future funding requirements that you might have.
When Should you Consider a Working Capital Loan?
If you have a business where your assets are greater than your liabilities you are in a good position to prosper. However, even when your order book is full there will be times when your business might not have enough cash in the bank to meet certain obligations.
A working capital loan is a viable option to consider if you simply need access to short-term funding that allows you to cover your cash flow requirements at certain times in your business cycle.
Like any financial product that offers a funding solution. If it is used in the right way and for the right reasons, it can be a great way of keeping your business running smoothly when cash flow is temporarily tight.