Some Types of Working Capital That You May Need
Every business will need working capital in the form of chunks of cash to keep operations running smoothly at one time or another. Some businesses are seasonal. Others go through predictable cycles of reduced cash flow. The reasons for an occasional influx of business money can be as numerous as the different types of businesses. Retail establishments may need operating capital to purchase inventory or seasonal merchandise. Manufacturing companies may require operating capital to purchase raw materials for a large order. Service businesses may need money to bridge the cash flow gap while waiting to be paid. You may also face some other needs for operating capital. For instance, you may be faced with emergency repairs after a catastrophic failure of a principle piece of business equipment such as a boiler. The constant barrage of local and government regulations often makes it necessary for business owners to modify equipment or facilities to be in compliance with current statutes. Any of these scenarios may require more cash than can be obtained from your normal day-to-day cash flow. Types of Working Capital One of the most common and fastest ways to obtain money for your business over the past decade has been to sell some of the future credit card revenue to a funding source. This is called a merchant cash advance, credit cash advance or credit card factoring. The credit card provider takes a percentage of your daily card credit revenue, typically no more than 20%, until the cash advance is repaid. The funding usually will have recovered the advance money 6 to 12 months. This type of business money is especially popular with
restaurants,
hotels, hair and nail salons, and other customer-service intensive businesses.
A business line-of-credit is another method to get working capital for your business. In this case, the funding source will issue you checks to use as needed. The advantage of this kind of credit line is that you only pay interest on the amount of money you use. For example, if you have a line of credit for $75,000 and you use $25,000. You only pay interest on the $25,000 and not the $50,000 that is still available to you. Unsecured line of credit can be obtained providing you meet the criteria set forth by the lending source. There is usually and minimum requirement for the length of time you have been in business. Your personal credit history will have to have a minimum credit score. If you are approved by the lender, you will qualify for a line of credit from $10,000 - $100,000. You will be issued a credit card to access this working capital.
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