What are different types of Working Capital financing?
Working capital is defined as current assets minus current liabilities. It is the cash that is available to run a company’s day-to-day operating expenses. Operating expenses include such things as payroll, inventory, marketing expenses and other costs associated with running a business ( http://www.investopedia.com/terms/w/workingcapital.asp ).
Traditional banks or lenders will often make financing to small businesses to fund growth or new projects. It can often be challenging for a small business to obtain a working capital financing from banks and traditional lenders.
Banks often require extensive collateral or substantial personal guarantees that the financing will be repaid. This can often require the business owner to put up their home or other valuable asset up as collateral.
Types of Working Capital financing
The mostcommon working capital financing options available include: ( http://www.finweb.com/financing/the-6-types-of-working-capital-financing.html#axzz3yraENACw ):
Accounts receivable financing
Accounts receivable financing take into consideration a business’ accounts receivable or confirmed sales order value. It is ideal for a company that needs funding to fill a sales order. This type of working capital financing is most often made to those businesses that are reputable and a good credit history.
Bank overdraft facility or credit line
The relationship a business has with their bank in part determines their credit score, interest rate and maximum line of credit that they can obtain. The interest rate that a business pays on this type of working capital is determined when the funds are withdrawn.
Equity funding from personal resources or investors
This type of working capital financing is obtained from personal resources such as friends, family or home equity financing. They are ideal for a new business or a company that does not have a good credit history.
Factoring or advances
This type of financing is similar to an accounts receivable financing except that the financing value is based on future credit card receipts. This type of debt will only work for a business that takes credit card receipts.
Short-term financing
This type of financing comes with a payment period and fixed interest rate. A short-term financing will have a maximum term of 12 months and most likely be secured with collateral.However, if the business has a good credit history and relationship with their lender, they may be able to get their short-term financing without putting down any collateral.
Trade creditor
A trade creditor working capital financing is usually provided by a supplier to a business who buys in bulk. A business can expect that the supplier will look at their credit history before making this type of working capital financing.
Will a working capital financing work for my business?
Increasingly working capital lending decisions are made using complex software and data modeling. (http://www.hbs.edu/faculty/Publication%20Files/15-004_09b1bf8b-eb2a-4e63-9c4e-0374f770856f.pdf). In contrast, traditional financing will focus on the credit history of the business as well as the small business owner and require extensive documentation.
Zip Capital Group Working Capital financing
While there are many different types of working capital financing, we focus exclusively on short-term working capital financing. We provide short-term working capital to:
- Buy inventory
- Increase cash flow
- Support expansion
- Bridge seasonality
- Or other uses that will help your business grow.
Instead of relying on your credit, we will assess your business on cash flow, the money that comes in and goes out each and every day.
Online lenders such as Zip Capital Group can be a great way to meet your business’ funding needs. We offer continuous access to working capital that can help you keep your company running. Contact us today to discuss your working capital needs.
