Working capital loans are the lifeblood of any business. It is a critical tool for any business looking to grow.
There are so many different types of capital resources in the market it can be overwhelming when trying to figure out which is best for you. So let’s first review the types of working capital loans available.
- Tradition bank loans
- Lines of credit
- Merchant cash advances
- Investment capital
Traditional Bank Loans
Most banks offer a variety of business loans for working capital, or investment capital — say, for inventory, or equipment purchase, for example. Any type of business loan for working capital has certain requirements and can be secured or unsecured. This can include but is not limited to, legal incorporation, years in business, and creditworthiness — of the business, and the business owner.
A business loan usually is short or long term and can flexible or fixed rate.
If you’re an established business, you may qualify for an SBA loan. You must be a legal for-profit or non-profit corporation, such as C Corp, S Corp, or LLC, to name a few. They also have special provisions for Armed Forces vets.
Sources for personal and/or business credit scores can be found on various sources, some of the more common includes:
For business credit scores, the same holds true — outstanding credit, income, and timely payments. Many banks will rely on several services to analyze your scores, including Dunn & Bradstreet. Check your score here for free.
Working Capital Loans
Lines of Credit
A line of credit is a valuable tool for business, as it allows you to draw down the line based on minute-to-minute needs. This is a good financing tool for working capital based on cash flow. During slow months or unusually slow collections, you can tap needed capital easily. Interest rates are based on the outstanding balance for each billing cycle.
Merchant Cash Advances
If you charge customers via credit cards, MCA may be the right financing tool for you. You can essentially get cash advances based on your average billing-collection cycles. You then pay down those advances daily or monthly based on the type of contract you have. These types of financial arrangements are based almost exclusively on your billing revenue averages.
If you’re looking to raise funding through private investors, it is a more complex process and requires an exciting investment opportunity for investors to be interested. Perhaps you have a new idea to disrupt an existing industry sector (i.e.Uber) or plan to introduce an entirely new concept (Amazon, iTunes, etc).
You can accomplish this through private funding, reverse merger into an existing public shell, and other means. Regardless, you need to convince investors that you (A) have a great product or service, (B) have a strong business model, (C) a team that can not only implement its introduction but can also maintain sustainable and growing operations.
Typically there is a lot of presentation work required for such a venture. This would include:
- Investor one-sheet
- Pitch deck (typically 10 pages)
- Business plan (or at the least an executive summary
- A Key Performance Indicator (KPI) chart (especially if you are a SaaS or PaaS based business
- Five-Force chart
- Lean Canvas, and
- Marketing plan (including the market research)