Money makes the world go around, and sometimes, business leaders need extra funds to accomplish their goals or continue with daily tasks. More than 28% of companies globally use working capital business loans to keep things running smoothly.
Business working capital loans can help you survive challenging economic times, whether you’re an equipment dealer looking for financing options for your customers or a manufacturer who could use some financial help to scale up. Let’s explore how much working capital you need as a Utah business owner.
Understanding Working Capital
Working capital is the money a company needs to run its day-to-day operations and cover short-term expenses like inventory, labor, rent and utilities. It usually comes from the company’s profits, but can also come from investments or loans.
Another way to define working capital is the difference between a business’ current assets and liabilities — also known as the net working capital. Use the following formula to calculate net working capital and measure your company’s short-term financial health and liquidity — working capital = current assets – current liabilities.
For this calculation, you should only consider short-term assets and liabilities, such as:
- Cash in the business’ account
- Accounts receivable
- Accounts payable
- Inventory you expect to sell within one year
- Vendor invoices
- Salaries
- Taxes
If a business lacks working capital, it may struggle to pay bills on time and meet other financial obligations, especially during low-demand seasons. It can also lead to missed opportunities, low productivity or business closure in the worst-case scenario. In contrast, excess working capital can indicate your company has too much inventory or is missing out on low-cost investment opportunities.
You must increase your current assets and reduce short-term debts to improve your working capital. Steps to take may include padding your inventory reserves, prepaying expenses to qualify for discounts and making wise hiring decisions. Though having working capital in the negative for a short period may not be an issue for your business, you should still ensure you have enough resources to cover necessary payments. That’s when fast working capital loans become an excellent option.
The Benefits of Working Captial Loans
Working capital loans differ from risk capital loans and working asset loans.
- Working capital loan: This short-term loan helps businesses quickly access the needed funds. Some of the best loans can provide the necessary financial cushion to cover expenses during low cash flow or when unexpected costs arise. In such situations, a working capital loan can be a valuable solution to bridge the gap between paying expenses and receiving revenue.
- Risk capital loan: Also known as venture capital or equity financing, this funding supports business growth, expansion, research and development. Investors provide capital to high-risk businesses or startups in exchange for an ownership stake in the company.
- Working asset loan: This broad term refers to borrowing funds with specific assets used as collateral. It can include different financing options, such as equipment loans or accounts receivable financing. This type of loan, also known as asset-based lending, requires assurance for security.
Working capital financing provides many benefits for businesses.
- Fast funding: Working capital lenders have rapid approval and funding timelines, since the loans help with immediate financial needs and daily operations.
- No collateral: These loans don’t require business owners to give up equity or control, easing the application process and reducing the risk.
- More lenient eligibility: Most lenders have relaxed eligibility requirements for short-term working capital loans. That makes it easier for business owners to fund their startups, fix a low credit score or pay off debt.
When businesses apply for a working capital loan, the terms may vary, but usually, you have a set time frame to repay the borrowed amount plus interest.
Qualifying for a Working Capital Loan
When applying for a working capital loan, the lender will consider many factors, including your business history, annual revenue, current net working capital and business plan. Lenders may also request your financial statements, credit score and tax returns if you have not separated your business and personal finances.
6 Signs Your Business Needs Additional Working Capital
Though your business may only require a specific amount of working capital, you may also need additional funds at different times of the year. For example, you may need more working capital in these six circumstances.
- Different cash flow seasons: Seasonal businesses, like construction companies, may need extra funds to hire more people and equipment for busy seasons and to pay expenses during quiet months.
- Big project funding: Those who work one project at a time need to plan for inconsistent cash flow, especially when you only receive payment on completion.
- Payment obligations: While waiting for client payments, you can use working capital to pay utilities, suppliers and employees.
- Bulk purchases: Some suppliers give discounts when purchasing products in bulk.
- Temp salaries: Working capital can pay temporary employees and cover other project-related expenses.
- Slow economy: Clients’ spending may decrease during economic slowdowns, reducing the demand for goods and services from some industries.
How to Qualify
Specific criteria vary among lenders. However, these are the minimum requirements to improve your chances of qualifying for a working capital loan from Solutions Financial Services:
- You must have been in business for at least one year.
- Your credit score must be at least 640.
- Disclose bankruptcy if applicable.
- The average loan amount is between $300,000 and $500,000 but can go up to $3 million.
- You must be a homeowner.
- You need money or equipment to facilitate growth.
Utah Working Capital Loans From Solutions Financial Services
If you’re a business owner in Utah or the surrounding states who needs quick financing, we would love to help you! Solutions Financial Services serves clients in various industries with flexible payment schedules that align with your cash flow. We approve and structure the best working capital loans other lenders turn down with fixed interest rates and faster turnaround times.
When you apply through Solutions Financial Services, you will work directly with a loan officer and underwriter throughout the process. For more information, get in touch with our team today!
Frequently Asked Questions:
Q: What are your interest rates?
A: Your interest rate will be determined by your time in business, the size of the loan, and your personal credit score.
Q: What documentation is required for underwriting?
A: Business ownership verification, business financial verification, personal financial verification including credit report, collateral information, and proof of insurance. Each potential client is unique, but this is the standard required documentation.
Q: How long will the process take?
A: SFS has a standard of completing the closing process five business days from the time all the requested documentation has been received and reviewed for accuracy.
Q: Do you offer loans to businesses that have been operating for less than a year?
A: Yes
Q: What can be used as collateral?
A: Anything with a VIN or Serial Number. We prefer for that item to be valued at greater than $10,000. Real estate property can also be considered. We’ve accepted bulldozers, over-the-road trucks, printing presses, dump trucks, CNC machines, hay balers, tanker trailers, and more.
Q: Which industries do you serve?
A: SFS serves clients in a variety of industries, including construction, mining, manufacturing, oil and gas, farming and ranching, transportation, and more.
