It would be great if business were predictable and smooth, especially in terms of cash flow. But the world doesn’t work that way, and neither does business. At one point or another, most companies will need more capital than what they have on hand in order to take advantage of an opportunity or complete an expansion. One short-term solution to this type of financial fluctuation could be to apply for a working capital loan.
What is a working capital loan? It’s one type of the many small business loans available to organizations. Unlike other types of loans, working capital loans can be paid off in as little as six months. That makes them a temporary solution, particularly for businesses that want to avoid taking on additional long-term debt.
Working capital loans provide a fiscal bridge. Sometimes, cash flow might be tied up in assets. Other times, you might need a short-term cash inflow to take on a new opportunity, expand a service line, or add a key piece of technology to your stack. There are countless circumstances when a working capital loan for small businesses could be the missing puzzle piece.
If you’re considering applying for a working capital loan, here are four key questions to ask yourself to determine whether it could be the solution you need to propel your company forward:
1. How much money do you need, and how will you use it?
It’s important to budget wisely, which means you’ll want to understand upfront not only how big a working capital loan you want, but how you’ll specifically disburse the money you receive. If you’re not clear on how much you intend to borrow, you might ask for too little or too much.
For instance, did you snag a large project for a client that you won’t be paid for until it is completed? You could borrow enough money through a working capital loan so you can keep operations rolling until you can finish the job. Have a purpose before you determine whether your business is a candidate for working capital loans or even fast-working capital loans.
2. Are your business financials in order?
Having strong business financials shows your lender that you’re taking your company’s fiscal health seriously. At Marlin Capital Solutions, we ask for tax returns from entities seeking working capital loans for small businesses at $100,000 or higher.
If you haven’t kept track of your income, expenses, and other records, start now. Having a good handle on how your business looks from a financial perspective won’t just help your lender of choice — it will also help you make wiser decisions moving forward. And that will be a boon to your corporate credit history, which can make you a more attractive prospect when you apply for business working capital loans.
3. What is your business plan, and how will the loan help you achieve your long-term goals?
Like your financial statements, you should have a tactical business plan in place. If a working capital loan is part of that plan, include what the funds will be used for — and how you plan to pay it back. Many working capital loan providers won’t require you to share a business plan, but it could help you illustrate how the loan fits into your trajectory.
As you put together your business plan, be reasonable and use real numbers. If possible, try not to estimate. The more exact your information in the business plan, the easier it will be for you to execute sales and marketing strategies to get your company back to financial stability by the time you need to pay off your working capital loan.
4. How quickly do you need the loan?
Business challenges can creep up quickly, and operational lag tags can compound the issues. If you find that you need money suddenly, you might be able to get approval for a working capital loan of up to $200,000 within a day. This allows you to obtain peace of mind and avoid interruptions.
You should still have a sense of how much money you should borrow as well as a timeline for repaying the loan. Nevertheless, having access to an influx of cash in one lump sum can help you avoid losing business opportunities that you might have missed because you didn’t have money on hand.
Do you think a working capital loan might be the right decision for your company based on your answers to the above questions? The application process takes minutes and can be completed entirely online, making it a fast, convenient way to help you remain competitive.