Working Capital Loans are Good For Business

Just the thought of starting a business can be a scary thing in itself. But to see your business struggling after start-up can make giving-up an attractive course of action. Even though times might get this rough at one point in the life of your business, it’s important to remember that you’re not alone. Tons of entrepreneurs have experienced the same problems with starting a business. The secret to coping with the harsh arena of entrepreneurship is proper capital management.

Working capital is basically the funds you need to sustain business operations after start-up, compared to the generic term capital, which are funds you need to actually start the business. Working capital is important because, upon starting your business, there will be sunk costs that you need to recover to stabilize the business. Sunk costs are basically the costs that you’ve already laid out to start the business – costs you cannot recover even if you choose to close the business. There comes a point in a business’s cycle where the revenues accumulate to a point where you’ve earned enough to say you’ve recovered your sunk costs. This is the point where your business starts to earn a net profit.

Before you get to that point though, as an entrepreneur, you’ll have to find ways to sustain business operations through sufficient working capital. Seems simple? It may be. But there are a couple of problems with acquiring and keeping working capital, especially for small and starting businesses. This includes increased credit transactions. The consumer climate today, for some reason, is so fond of purchasing goods and services on credit. It may be convenient for dear consumers, but means hell for the owner because this screws up cash flows really bad. Without sufficient cash flows, you won’t have the necessary liquidity to finance on-going business operations. Another problem usually encountered with cash flow concerns is the natural ups and downs of business operations.

The best and most conventional way of dealing with problems regarding working capital is through acquiring working capital loans. These business loans are usually short-term (payable within months) in nature. The loan can serve as a buffer until business operations and revenues stabilize. 

The basic conditions of acquiring a working capital loan are a lot like any other loans, only in this case the terms and conditions are more flexible because of its short-termed nature. The lender basically asks you to establish reasonable proof of future repayment. This can come in the form of current and monthly revenue statements, a projected statement of future cash flows, a list of assets that the business owns, and the credit history of the owner. 

Banks usually have set ‘packages’ for these types of loans. Alternatively, there are also other companies that have a different way of financing working capital. These alternative financing companies are usually built primarily to help out small businesses, which do not often have very good credit ratings. Hence, conventional banks tend to reject these type of loan applicants. Alternative financing companies usually offer more flexible terms and conditions, which are tailored to each business’ repaying capacity and projected profits. They usually do this through a merchant cash advance system or a similar system. Since the service is specialized, hundreds of businesses have found them more viable for potential approval as well as business growth.

At the end of the day, struggles with cash flow and working capital are all just bumps in the road and are a natural pain when starting a business. But with the right resources and the right financiers, any entrepreneur should soon see the light at the end of the tunnel.