The funds that a business uses for operating expenses such as employee salaries, rent, and debt payments are referred to as working capital. You can calculate the working capital your company has available by subtracting liabilities from assets. If the total you come up with is not positive, you may need working capital financing so that your business can pay your employees, acquire inventory, purchase equipment, and continue to grow. It is common for companies that are seasonal or that encounter unexpected opportunities for expansion to require a boost in funding. Here are some of the most common methods of financing when businesses need additional working capital.
Obtain a Line of Credit
Opening a line of credit with a bank or other financial institution allows you to draw from a predetermined amount of funding when your business needs working capital. After you have paid back what you have borrowed, you have access to the same amount again. This works well for companies that need periodic boosts in funding.
Take Out a Short Term Loan
If your credit rating qualifies you, a short-term loan offers your company a one-time infusion of funds that you usually payback in six months to a year at a fixed interest rate. There is minimum paperwork and approval is quick, but interest rates tend to be high. If your bank permits it, you may also be able to borrow money in the form of an overdraft.
Use a Loan to Purchase Equipment
If your company needs vehicles, machinery, or other forms of equipment, an equipment loan is a viable option when you are short of working capital. The only collateral you need is the equipment itself, and the new equipment will assist you in boosting productivity.
Invoice factoring involves selling your unpaid accounts receivable to a factoring company. One advantage of this form of working capital financing is the quick application and approval process. You can qualify even if your credit is bad because the factoring company is more concerned with the creditworthiness of your clients.
For more advice on working capital financing, contact Rushview Commercial Funding.