Working capital loans provide the money you will need to keep your business going until you can cover your operating costs out of revenue.
The five most common sources of short-term working capital loans are:
Equity: These funds usually come from your own personal resources, a family member, friend or third-party investor.
Trade Creditors: A trade creditor may be willing to extend terms to enable you to meet a big order.
Factoring: A factoring company buys your accounts receivable and then handles the collection.
Line of credit: Your business can qualify for a line of credit allowing your business to borrow funds for short-term needs.
Short-term loan: A banker might be willing to provide a short-term note (less than a year) for one order or for a seasonal inventory and/or accounts receivable buildup.
The two most common sources for long-term working capital financing are:
- Bonds: These debt securities are promises made by the issuing company to pay the principal when due and to make timely interest payments on the unpaid balance.
- Long-term loan: Commercial banks make loans to your business which then you can repay the principal with interest. They often require collateral for upwards of 85% – 90% of the loan value.