Working capital is the money a business uses to cover its daily expenses like utilities, supplies, payroll and rent. A working capital loan offers your business a way to temporarily pay for these expenses when your bank account is running low.
You may think that if your business is successful and you’re managing to balance your finances correctly, you’ll never need a working capital loan, but that is not necessarily true. Maintaining a balance of cash on hand can be a challenge.
While it is important to keep some money in reserve, you do not want your company’s financial safety net to grow too large. Save too much money and you could miss some valuable opportunities to invest in your business and potentially grow.
But what happens when an investment goes wrong, or you do not collect on invoices as quickly as you anticipated? What if your company’s sales cycle is seasonal and you have an unexpected expense come up during a slow income month?
When funds are tight and cash flow is low, a working capital loan may help your business cover those everyday operational expenses until your business has a chance to catch up through sales, invoices, investments or other means.
What Are Working Capital Loans?
As mentioned, a working capital loan is a type of business loan that can help when your company finds itself in a tight financial spot for whatever reason. This form of business funding is not used for long-term investments, but rather is rese