What Is a Working Capital Loan and Why Should I Get One?

What Is a Working Capital Loan and Why Should I Get One?

When you need money for everyday business expenses, a working capital loan is a solution you should not overlook. This article explains what it is and why you should consider getting one.

In business, as the saying goes, you have to spend money to make money. For many businesses that don’t have money lying around, though, margins are often so thin that, at the end of the day, they are lucky to make ends meet.

What should you do if you fall into this category? When working capital just isn’t there, a loan could be the answer to your problem.

What Is a Working Capital Loan?

To summarize it briefly, working capital is the difference between your business’s current assets and liabilities. If your assets are greater than your liabilities—a.k.a. your debts—then you are good to go. If, however, your debts are greater than your assets, that’s where a working capital loan could be useful.

Working capital funding comes in many different forms. They can be term loans, SBA loans, short-term loans, and invoice factoring (although this last form of funding is not technically a loan).

If you are having difficulties covering your business’s daily expenses, you can use this type of loan to keep things running.

3 Reasons to Get a Loan for Your Everyday Business Expenses

The reasons that you could possibly need a working capital loan are as unique as your business and the industry you operate in. However, a few common motivations exist across the range of businesses.

Here are three common reasons business owners choose to take out a loan.

Poor or Inconsistent Cash Flow

Positive cash flow is vital to any business’s success, so when your clients take too long to pay for your services, or your inventory is not flying off the shelf as you projected it would, then you could have trouble paying your bills.

A loan could help you fill in the gaps where your cash flow is lacking.

Business Growth

Not all reasons to get a working capital loan are negative. If your business is experiencing growth, you might need a little extra help to pay for daily expenses, such as hiring new employees and buying new inventory.

Seasonal Sales Changes

Many businesses generate most of their income during certain seasons, such as the holidays. For those slow months, a working capital loan helps cover costs and keep things running so that you can make it to the next boom cycle.

Alternatively, a seasonal business could apply for a loan to purchase new equipment or inventory for an upcoming rush in sales.

Need a Working Capital Loan? AA Bankers Is Here to Help

Are you in need of funding for your business? No matter the reason that you need a little extra cash, AA Bankers is ready to help. Contact us today so that we can discuss your business needs.