Working capital loans are good financing options for small businesses. They can be used to purchase inventory, cover payroll, expand marketing and cater for daily operations. Here, we take you through some of the best working capital loans, how much they cost and the terms and requirement of each.
Short-Term Working Capital Loans
Most institutions that offer short-term working capital are non-bank financial companies that give loans to the tune of $500,000 with a 3 year or lesser term. Short-term loans are a perfect fit for non-prime borrowers and merchants searching for working capital loans they can repay in a year.
Short term loans are flexible enough to fund as little as one business day making them the fastest working loan alternatives for SMBs. They are often costlier than many funding options, with an average annual interest rate of 30 to 50 percent.
These types of loans are great for non-prime borrowers and businesses that need immediate working capital to sort unexpected expenses.
Merchant Cash Advances
Merchant Cash advances are when your business receives money advance from a lender in return for a day-to-day share of your total credit card sales. Lenders won’t likely look into your personal credit and any guarantees (collateral) as they do with other funding options. As long as you can prove to the provider how much you business makes per year in debit and credit card returns, you’re good to go.
Repayment is usually made by paying off a small percentage of your daily credit card sales and most retailers get to clear their merchant cash advances in 4 to 18 months.
While you can have the funds ready as fast as in a day, MCAs are an expensive financing alternative with an average annual interest rate of 60% – 80%. They are recommended for businesses that mainly receive payments through credit and debit cards, and have poor credit scores which makes it difficult for them to access other financing alternatives.
P2P Business Loans
Peer-to-peer loans are working capital loans offered to merchants by institutional investors or any willing folks via online marketplaces. You can easily apply online, provide necessary personal and business credentials, and get approved almost instantly— and can receive your cash in two weeks. They work more or less like short-term loans but have lower rates and complex repayment terms. P2P loans are quick financing options for those looking to better their credit profiles.
You can never run out of options regardless of how small, poorly rated or new your business is, there’s always a lender willing to offer a loan. Be sure to search for one that favors your type of business.