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How to get a working capital loan?
Working capital loans are used for paying for expenses, buying inventory, or financing projects. Such loans have the advantage that you can use the funding to get ahead or solve short-term cash flow problems.
What is a working capital loan
A small business working capital loan is a type of short-term financing provided by online lenders. The types of small business loans include the following:
Term loans
Unsecured loans
Merchant cash advances
Invoice factoring
Business lines of credit
Bridge loans
Equipment financing
No matter the type, the purpose of a working capital loan is to fund short-term needs, such as expenses, expansion, purchases, or projects.
How Can You Use a Working Capital Loan?
To understand how you can utilize a working capital loan, it's important to understand what working capital is. Working capital is money that you have tied up doing the things you need to do.
Pretty much, as its name suggests, you can use a working capital loan for any short-term expense associated with your day-to-day operations. The only exception is that some types of working capital loans come with specific restrictions on your use of funds. Equipment Financing is specifically for the use of equipment.
The following types of working capital business loans have absolutely no restrictions on how you can use the funds:
Online lenders;
Merchant cash advances;
Invoice factoring;
Business lines of credit
This means you can use these loans for everything from paying off debt to additional inventory. Looking for a financing solution that doesn't have restrictions is a great option, so you can use the funding however you want.
Working Capital Loans with Restrictions:
SBA Loans
Some Bank Loans
Bridge financing
Inventory loans
Equipment financing
All of these loans come with different limitations. For instance, business owners may use the inventory loans and equipment financing strictly for inventory and equipment. As far as the term loans and bridge financing go, it is not a question of black and white. Some term-loans and bridge-loans are restrictive about how you can use the funding. You will need to discuss your specific needs with the lender to learn more about their restrictions.
How to Apply for a Working Capital Loan:
The exact steps to get approved for a working capital loan will depend on the specific lender and loan type.
But there are mainly two types of loan processes.
One is with a Bank / SBA Lender, the other process is with online lenders.
Working Capital Loans With a Bank
You will be required to provide the last 3 years tax returns, debt schedule sheets, income statements, and if there's collateral required, you'll need all the documents pertaining to that.
The eligibility requirements are usually to be in business for at least 5 years, have a credit score above 680, and to have shown a profit/gain on your last 3 tax returns.
The loan terms will usually be on a 10 year term with Prime Rates, (being around 8% - 10%). Though, It will take about a month or even longer to get the funding (if you're approved) with a Bank or with the SBA.
Working Capital Loans With an Online Lender
With an online lender all that will be required to apply, are the last 3 months bank statements
The eligibility requirements are usually to be in business for at least 1 year, and be generating a minimum of $20k in monthly sales.
The loan terms won't be as long as a bank loan terms, ranging from 3-24 months. Most online lenders will have you approved and funded with 24 - 48 hours from when you apply
Conclusion
As you might expect, how you repay a working capital loan depends on the type of loan you obtain. For example, the payment terms of a bank loan and those of a merchant cash advance are very different. A traditional lender will have set monthly payment. Yet an online lender will have a weekly payment, splitting up the debits making it easier to make the payments. The point is that there's no one way that the repayment process works for working capital loans.
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