Working Capital Financing

As a small business owner, you know that working capital is the lifeblood of your business. It is what keeps your business running and what finances your everyday operations. You keep close track of when you need to pay your vendors and employees, and when you can expect to clear up accounts receivable. Managing your business operating liquidity is critical to your company’s success.

But beyond just managing your daily operating liquidity, working capital can also be a source of growth. There usually are numerous opportunities in the market, and your ability to tap working capital loans quickly is critical in taking advantage of the opportunities.

Take discounts on large volume purchases from vendors: often times vendors extend a limited-time only price discount on bulk purchases. Or, some vendors will accept a lower payment on your outstanding balance just to clear up their own receivables account. Beyond the dollar amount that you save from these discounts, by being a large volume purchaser, your business is more likely to land a spot on the preferred customer list—vendors like dealing with big buyers.

Other opportunities that require increase in working capital could come from expanding your product offerings. You likely need to add to your staff, step up marketing efforts, and purchase goods/inventory ahead of sales; all of which are payments you would need to make before collecting on your new sales.

There are several working capital financing options. A working capital loan from traditional banks often require collateral (your accounts receivable or other business equipment/assets), UCC-1 filings, at least 2 years’ worth of financial statements, a business plan, high credit score, and weeks to complete an application. Further, terms of traditional loans are often in years; if your working capital needs are only 6 to 18 months, it may make more sense to match the duration of the liability to a shorter term loan.

Another option is through a Merchant Cash Advance. While the application process is much simpler than loans from traditional banks, merchant cash advances usually require a large portion of your sales to come from credit cards and can be quite expensive. Factor rates of cash advances are on average 1.3x; meaning, if you need a $10,000 working capital loan, you would have to pay back $13,000 over 3 to 18 months. Often, the financing company will take a percentage (usually 10%-20%) of your daily credit card sales against the balance owed until all payments are made.

While it could be tempting to tie payments with your credit card sales, this could be a double-edged sword. Consider this: if you take a merchant cash advance and are able to grow sales quickly, you could end up paying $13,000 on a $10,000 advance over a 3 month period (that is, the advance could have cost you 30% over a 3 month period)! On the other hand, if your sales do not grow as anticipated, you may end up having to pay 20% of all your credit card sales for years.

A final caveat with merchant cash advance would be that of payment method: some finance companies require a Lock Box or Trust Bank Account Withholding where all of your credit card sales are first deposited into a bank account controlled by the financing company, after which the company returns funds to you at the agreed upon rate. This not only delays receiving funds from your customers, but also removes an element of control over your own funds.

Instead, our XPRS Working Capital Financing has flexible terms with manageable daily payments so you can control your business cash flow. Our application process is simple and fast, and we focus more on the cash flow of your business and less on traditional bank metrics that just takes up processing time with no real information about your business. Our working capital loan offers competitive rates and terms that are tailored specific to your business needs.

If you are ready to move forward and join the many businesses that have grown with us, click here.