Obtaining Working Capital Cash for Business Purposes
There are many reasons why a business might need to obtain working capital cash for their company. Sometimes, a business needs to look at expansion opportunities. Sometimes incredible opportunities become available where a business must make an instant decision. In some cases the business needs to increase their advertising or add to their inventory. In any of these instances, the business might not have enough in liquid assets. Cash is the most liquid asset. Often times a business will have thousands of dollars tied up in inventory. That money will eventually return to a cash state as inventory is sold, but in the interim a business can be cash poor, limiting their spending options.
Businesses that need working capital for cash have several options for obtaining financing. There are traditional bank loans, cash advances, lines of credit, investors and more. Every option has both pluses and minuses, and each can be best in a given situation. When a business needs working capital cash right now, a cash advance might be the best way to go. They have the highest interest rates, but the money is often available in just a couple of days if not sooner. For emergency situations and extremely short term loans, this option is one of the best.
Traditional bank loans are another great way to get working capital cash. These loans often take longer to line up, but the amounts are often much higher, and the interest rates are much lower. Plus, the loan terms are often extended. Many traditional bank loans are available in both 15 and 25 year options, with a fixed interest rate. The fixed interest rate allows the business to plan for the expense long term, since the payment amount will never change. There are also adjustable rate loans, but these have several risks associated with them. The trick to choosing adjustable rate loans is to borrow as little as possible. You will want to pay these in full during the introductory rate term. This is usually five years. At the end of five years, the interest rate on the loan usually sky rockets or there is a large balloon payment due. If you cannot meet the loan in full during that first five years, you could face financial difficulties down the road.
Lines of credit are offered to business to increase their spending flexibility. These offer working capital cash to be used on a regular basis. Businesses often use lines of credit to pay regular monthly bills and vendors. The ability to make the purchases up front and then pay off the credit line over three months allows businesses to keep a constantly rotating inventory to maintain customer interest. Businesses are expected to change out stock on at least a seasonal basis, and most vendors are payable monthly. Since it can take a full season to finish selling the new items, the business is originally taking a loss on the items. Their cash flow can stay positive, but they may need working capital cash to keep the system running.