Working Capital Finance: What Is It and How Does It Work?

Finance

Working Capital Finance: What Is It and How Does It Work?

Funds available after expenses are considered working capital or liquid cash. But what if you don’t have enough cash to run your business and grow simultaneously? In such instances, you can leverage the cash liquidity of other convertible assets (i.e., bearer bonds, accounts receivable). 

You don’t want to miss opportunities due to cash flow! Boosting working capital allows businesses to free up cash and grow more efficiently.  Several different types of lending options are considered working capital finance that you should be aware of to help grow your business.   If you are looking for a reliable and trusted factoring company, don’t hesitate to contact Outsource Financial Services today. We have 20+ years of experience helping small businesses in the trucking industry. 

Working Capital Finance – Types and Uses

Several types of working capital finance options are available to help leverage assets to help grow your business.  Below are the five most common types of working capital finance options and their usage.

Line of Credit 

When applying for a line of credit, keep in mind that your business credit score and aggregate outstanding debts will impact your interest rate and the maximum line of credit you will receive. Your company’s relationship with the lender may also affect that amount. You can borrow against the amount up to the limit, provided you keep payments current, similar to a revolving credit card account.

Invoice Factoring 

Invoice factoring is another type of working capital finance based on future sales receipts, similar to an accounts receivable loan. A factoring institution will “buy” you’re accounts receivable at a discounted rate. This method is one of the best means of obtaining working capital finance quickly. Here is a link to learn more about invoice factoring with Outsource Financial Services. 

Short-Term Loans

Short-term loans have fixed interest rates and established payment periods. The loan repayment period is typically secured by assets and is payable within 12 months; the amount you may borrow is limited by the assets available. Often, you will be required to give a personal guarantee to obtain a short-term loan. However, if your business has a good credit history and a good working relationship with your lender, you may qualify for a short-term unsecured loan.

Personal Resources Equity Funding 

Home equity loans are a prevalent source of working capital finance. With this type of funding, you borrow against the equity in your home. The amount of equity you can borrow from your home will vary by the lending institution; most lenders allow you to borrow 80-85% of your home’s appraised value. This is one of the ideal types of working capital finance for start-up businesses. Also, home equity loans may be the most suitable type of working capital finance if your company lacks a credit history or good credit history.

Accounts Receivable Loans

Some lending institutions will consider loaning you money based on your company’s sales orders or accounts receivable. However, lenders only consider these types of working capital loans for reputable businesses and those with proven track records of paying debts and fulfilling obligations.

Conclusion

Outsource Financial Services is a highly-rated invoice factoring service that has provided expert service for over 15 years. We have become a trusted partner with our clients due to our flexibility, simplicity, and transparency. By understanding your company and its specific needs, we strive to go above and beyond to nurture lasting relationships and help our clients reach their full growth potential through financial freedom.

Contact Outsource Financial Service to learn more about our services. An online application is available, and we can provide you with a free quote for your business. If your customer payment delays are slowing your growth or simply looking to access more working capital, your needs are important to us. Let us show you that factoring makes sound business sense. Contact us today!