5 Types of Working Capital Financing
When you own a business, oftentimes a great deal of your money can get tied up and you end up with little cash on hand to pay for daily expenses. The kind of money you need to help your business function daily is called working capital. When you do not have this kind of money readily available, it can become difficult to make your business run smoothly. There are several ways you can get some working capital financing to keep your business working efficiently.
1. Long- and Short-Term Loans
This kind of financing will provide working capital for either the long- or short-term of your business, depending on what you need. Long-term loans are expected to be repaid over a period that is over 12 months, with interest rates predetermined. Usually, these kinds of loans are borrowed against your assets. Short-term loans are expected to be repaid less than a year from when they are borrowed. This kind of loan would be useful for very small and immediate expenses.
2. Asset-Based Financing
A business may choose to gain working capital financing from a financial institution by using any assets it may have. This can include equipment, vehicles or accounts receivable. Any people or companies that owe the business may have their accounts sold off as an asset, in order for the business to gain working capital.
3. Inventory Financing
If a business chooses to utilize its inventory to gain financing, that is entirely possible. This kind of loan allows the inventory of the business to act as collateral. However, a business cannot sell the inventory until the loan has been repaid since the lender has a right to the inventory.
4. Trade Credit
You can also obtain working capital financing from the suppliers of your inventory by paying for the goods at a later date. This kind of working capital is specific to your inventory but can be helpful for opening up cash elsewhere. If suppliers are hoping to maintain a lasting relationship with you, they will likely be willing to open up a line of trade credit in your favor.
5. Line of Credit
You can also open a loan of credit with a bank, which will enable you to acquire some working capital quickly. This a great option for those that have regular expenses at particular intervals. There are several ways in which you can obtain working capital financing for your business. With all the options that are available, there is certainly a way to finance that works best for your business needs.