Need a Shot of Capital for Business Growth? Here’s How to Find a Working Capital Loan This Year

“When opportunity knocks, answer the door.”

I’m not sure who originally said that, but its message is clear and wise. And, I think a corollary quote—“Opportunity doesn’t knock a second time”—is also important to keep in mind.

I’m making these points because after years of slogging through a ho-hum business climate, it seems that the coming months (and hopefully years) hold tremendous promise for business owners and entrepreneurs.

Economic growth has been hitting north of 3% in recent quarters, and with promised tax reform, it should edge even higher. In addition to this, consumer confidence is at levels that haven’t been seen in many years. Add these together and you have conditions that are ideal for growth, including new ventures and the expansion of existing ventures.

Current business owners should consider strategies like these:

• Hiring to quickly implement a strategic growth plan or realize a sudden opportunity
• Marketing and advertising in new areas in order to reach new market segment
• Boosting inventory to secure better pricing to support opening new markets

The problem many small business owners have is that they don’t have the funds to finance shorter, fast-turnaround situations, like the opportunities that I believe are presenting themselves right now and in the coming months. Further, many small businesses find themselves stuck in an annual revenue area of $1 to $10 million, and without the funds on hand to make a jump to the next level.

Startup founders know to look for grants, crowdfunding, and angel investors, and established small business owners understand the ins and outs of bank loans. However, another form of financing for established small businesses—working capital loans—is a little less familiar to many owners, yet working capital loans can be the ideal financial tool to handle opportunities (or problems) that present themselves in the shorter term.

RELATED: 5 Tips for Securing a Small Business Loan

All about working capital loans

The requirements for working capital loans differ significantly from bank loans (and you won’t have to fine tune your elevator pitch, like you would if you were to pursue private financing.) Here are some of the highlights:

• You don’t need to lay out a detailed plan of what you want to do with the money. Paperwork is minimal.
• If your credit score is at least 500, you’ll need to show an annual profit of $50,000; if your credit score is at least 600, that gets cut in half to $25,000. If you’ve been denied a bank loan, your chances may still be good for a working capital loan.
• You have the flexibility of choosing the type of working capital loan that best meets your needs: a term loan, cash advance, invoice factoring, revolving line of credit, or purchase order advance.

Here’s a basic overview of these types of working capital loans available to you with some of their benefits.

Term loan. This is a basic loan that the borrower pays back over a given term or period of time—no surprise there. Today they are sometimes available via online peer-to-peer lending networks. Typically, you need to have been in business for two years, and they are best when you have predictable income flows.

Cash advance. Think of this as a mini-term loan. Just like the “cash advance” payday loan store across town from you, the interest rate will be higher than other loans, such as the standard term loan. But if you have an opportunity to get a great deal on discounted inventory and know that you can turn it quickly, this loan can still work well.

Invoice factoring. With invoice factoring you’re essentially selling your open invoices to a third party. You’ll usually get paid around 80 cents on the dollar. The tradeoff is that you get paid quickly.

Revolving line of credit. Here’s your business credit card. The interest rate won’t be as high as a cash advance. Also, a credit card can make expense tracking easier and also help you control spending.

Purchase order advance. This is the flip side of invoice factoring. Say you’re working to establish a new major customer and you finally get the big order your team has been working on. You can borrow against the new customer’s purchase order to fund materials or the additional labor required to meet the order. You can then pay off the loan as the money starts to roll in.

All of these working capital loans can be useful and perhaps a combination of loans—such as a company credit card and a term loan—could put your company in a better position than it is in today.

Take a good look at the current potential for growth in our economy, and if you don’t have the funds on hand to take advantage of those opportunities, find the best working capital loan for your purposes.

RELATED: The Secret Weapon That Can Help You Get a Better Business Loan

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