4 Myths About Working Capital (and Why They Are Wrong)
There are some myths about working capital that aren’t true; and the reality is that with small business working capital you’ll have extra cash to use for the areas of your business that need upgrading. Read this post, and you’ll be set straight when it comes to working capital solutions:
– Myth #1: It’s the same as getting a bank loan – Many individuals assume that applying for a bank loan and a small business loan from an alternative financing company are similar procedures. It is actually the opposite! Applying for a bank loan can often take months, and you still may not receive the financing that you need. In addition, their qualifications are usually stricter than most lenders. That’s why if you need financing within the immediate future, and don’t want to have to worry about meeting strict requirements, it may be better to apply for business working capital from a lender.
– Myth #2: Business loans and merchant cash advances are the same product – Although both small business loans and merchant cash advances are considered business working capital products, they have numerous differences. Merchant cash advances are paid back through a fixed percentage of a business’s credit card sales. Ultimately, the payments are always different because they are dependent on the business’s sales at that time. Unlike merchant cash advances, a small business loan will have a set re-payment schedule and amount.
Another way that small business loans and merchant cash advances differ is that some industries benefit from one of the products more than the other one. For instance, most restaurants make a lot of their sales via credit cards, so a merchant cash advance can be beneficial. In comparison, construction companies don’t usually process credit cards, so a small business loan would be a better product for them to pursue.
– Myth #3: They can’t be personalized – Most lenders will ensure that your business’s loan is tailored to your business’s needs, in terms of both the amount and term. Working capital solutions are best when they are in an amount and term that your business can responsibly handle, so talk to your lender about your business’s current financial situation. This way, they’ll be able to provide you with business working capital that is customized for your business.
– Myth #4: They will hurt your business’s finances – Taking out a small business loan or merchant cash advance can be a great way to grow your business, pay for emergency costs and allow you to have additional cash flow. Of course, with any amount of money, it is up to you to use it responsibly! Ultimately, having small business working capital at your disposal will enable you to improve your business, and provide you with peace of mind knowing that you have extra funds for future endeavors.
We hope that this post has educated you on common misconceptions about working capital products! If you’re ready to apply for small business funding, feel free to check out our funding options page.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.