Working capital is funds available in business to run the day-to-day operations smoothly. Having an adequate working capital in the firm is a good sign whereas inadequate funds reflect poor management of funds and reduced sale of the stock. Bringing funds into the business becomes imperative when there is a financial crunch or insufficient working capital. There are different ways of bringing working capital into the business. However, it is advisable to choose the one that best suits your loan requirements and is approved quickly with minimal processing time. There are eight best ways to avail loan for a small business. The money brought in with one of these eight ways can be used for buy inventory, start a new product line or finance the daily operations of the business.
- Small Business Administration loans
The Small Business Administration loans (SBA) are offered by the banks, community development organizations and micro-lending institutions at lower interest rates and have long and extended repayment periods. The SBA guarantees repayment of the loan to the lenders and the funds can be used as working capital, buying new equipment or to refinance debt.
- Equipment Financing
The equipment financing option is ideal for small businesses that need working capital to purchase equipment, machinery or vehicles for the business. The lenders finance the equipment and are then leased out to the business. The company pays a monthly amount towards the lease and buys the equipment at the end of the lease period at a nominal value. Interest rates are comparatively low on equipment financing.
- Business Credit Cards
Several small business owners use credit cards for bringing working capital into the business. Credit cards charge an average 15% interest on the amount withdrawn and some banks offer interest-free period of 9-21 months. The money withdrawn for working capital can be repaid before the interest-free period is due to bring funds into the business which is interest-free.
- Invoice factoring
Invoice factoring helps a small business owner to bring in funds quickly for working capital. It involves invoice factoring services who buy invoices from the firm at discounted prices and collect them from the clients directly on behalf of the business. The factoring fee is deducted from the invoice amount received, and the rest is transferred to the business. This method of raising working capital is a short-term credit and involve invoices less than 90 days.
- Merchant Cash Advances
A merchant cash advance is one of the best ways to get working capital for small businesses. This method involves a lump sum loan amount availed by the borrower and is paid back with a share of sales made through merchant terminal on a daily basis. The credit can be availed even by the borrowers with low credit scores and does not involve fixed repayable amounts. The business needs to pay merchant cash advance when the sales are dry. The amount repayable depends totally on some sales made through merchant card machines.