Working capital loans are designed to provide businesses with the funds needed to cover their day-to-day operational expenses. Here are some common types of working capital loans:
- Short-term Loans:
- Term Loans: Traditional loans with fixed repayment schedules, often used for specific short-term needs.
- Demand Loans: Loans that can be called in by the lender at any time, providing flexibility but requiring careful cash flow management.
- Lines of Credit:
- Revolving Credit Line: A flexible loan that allows businesses to draw funds as needed up to a predetermined limit, with interest paid only on the drawn amount.
- Overdraft Protection: A credit line attached to a business’s checking account to cover overdrafts, usually with a higher interest rate.
- Invoice Financing:
- Factoring: Selling accounts receivable to a third party at a discount in exchange for immediate cash.
- Invoice Discounting: Borrowing against unpaid invoices, using them as collateral.
- Merchant Cash Advances (MCA):
- Advances based on future credit card sales, repaid through a percentage of daily credit card receipts.
- Trade Credit:
- Credit extended by suppliers allowing businesses to delay payment for goods or services, effectively acting as an interest-free loan.
- Business Credit Cards:
- Credit cards specifically for business expenses, offering flexible borrowing with potential rewards but often higher interest rates.
- Microloans:
- Small, short-term loans typically offered by nonprofit organizations or community lenders, designed to support small businesses and startups.
- Equipment Financing:
- Loans or leases to purchase equipment, where the equipment itself serves as collateral.
- Inventory Financing:
- Loans secured by inventory, used to purchase additional stock or manage cash flow during slow periods.
