Small businesses take out loans every day to help them cover the myriad costs of operating a company. It’s been estimated that 16% of loans taken out in the U.S. are solely for business use, and it seems that small businesses are major players in that 16%. Small businesses, defined by the SBA as businesses employing fewer than 500 employees, are home-based more than half of the time, cutting down on costs. Still, 63% of small businesses taking out loans needed them for cash flow purposes and 49% of small business owners also use personal credit to finance their companies.
There are a number of options in terms of short term loans for small businesses. The trick is finding the right one for your company. A working capital demand loan is a common option and is defined as a loan intended to finance every day operations of a company. Working capital loans are not meant to buy long term assets or investments, but instead are intended to clear up accounts payable, pay wages, advertise, expand, purchase inventory, and handle other daily capital issues.
How Do Working Capital Demand Loans Work?
Basically, you’re provided with funds based on your expected future sales. Future credit card receivables are immediately converted into capital that can be used for business purposes. Payments are taken as percentages of credit card sales, making them contingent on the success of your business. They’re ideal for companies looking to avoid small business loans, unsecured business loans, bad credit loans, or secured business financing.
How Do Working Capital Demand Loans Compare to Business Loans?
About 90% of the time, banks refuse credit requests. The application for a business loan can take a lot of time, and rarely ends in approval. On the other hand, working capital term loans boast easier application processes, higher approval rates, minimal credit requirements, flexible repayment, quick access to funds, and few limitations on use of funds. The only major requirement is proof that you participate in a large number of credit card transactions each month.
Is It Worth It?
Working capital demand loans are great ways to get money fast,without the hassle of traditional bank loans and without the risk of personal guarantees or unsecured loans. In addition, they allow you to use the money as you see fit. If a business loan doesn’t seem to be the right option for you, look into working capital demand loans. It might be just the ticket to your success.