Working capital loans provide your business the cash it needs to keep growing until you can cover all operating expenses out of revenue. Working Capital is the result of current assets minus current liabilities. Working capital loan is short-term loan which is meant to increase your cash flow. Without working capital loan most businesses are unable to generate enough revenue. They are often used to fund the daily operations of their business. These funds provide access to cash which can be used to pay rent or mortgage payments, utilities, marketing expenses, inventory, employees salaries etc. It is basically a loan whose purpose is to finance everyday operations of the company. 

Building solid business credit scores are the key to obtaining substantial working capital loan that can be used to grow your business. In general, companies that have a sufficient working capital will be more successful since they can expand and improve their operations. Companies with low working capital may lack the funds necessary for the growth.

There are five common types of a working capital loan. These are:

1.   Equity: Equity loans are obtained from personal resources like equity in your house, funds from friends or family members or from angel investors.

2.   Trade Creditor: A trade creditor will extend a loan to you so you can purchase a large quantity from their place of business. They will often check your business credit history before extending credit to you.

3.   Factoring/Advances: You can sell future credit card receipts for instant capital if your business accepts credit cards. Another option is to sell your accounts receivable to a factoring company who handles the collection.

4.   Line of Credit: Your business can apply for a bank line of credit, giving you the ability to borrow for short term needs. Good business credit scores will assist with your approval for a line of credit.

5.   Short term loan: A bank can also extend credit to allow you to purchase inventory for a season. This note will typically be less than a year. Again, good established business credit scores will nearly guarantee access to this kind of funding.

 Advantages

·         Working Capital Loans are quick sources of cash.

·         They can help your business tide over cyclical downturns.

·         They can be used to provide cash flow during short term shocks example when your key customer is declared bankrupt.

·       They can only be used to meet short-term cash needs - they are insufficient for long-term plans or projects that require more capital (cash or asset).

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