Every business needs working capital to cover ongoing expenses. In fact, whether or not a business succeeds often boils down to its working capital. Whether a business is starting out, is established and looking to expand, or faces cyclical earnings cycles, working capital loans can be a resource that helps the business thrive.
Types of Businesses That Benefit
Startups often turn to loans to cover their working capital needs. That’s because fledgling companies need time to begin collecting money from customers. Commonly, new businesses obtain a line of credit to assist with working capital.
Expanding businesses also make use of working capital loans to finance growth. For instance, such a loan could be used to cover payroll expenses: As a company hires more people, there may be a gap between when they begin collecting paychecks and when they actually begin generating revenue for the business. A loan can take the sting out of that gap and facilitate expansion.
Additionally, working capital loans are helpful to businesses that earn their money in bursts, as pointed out on Investopedia. For example, many manufacturers go through cyclical periods of earning money. Loans to boost their working capital can help manufacturers continue to pay employees when earnings are not as high. Other types of businesses that face cyclical earnings include real estate agencies and construction companies.
Along with the general uses listed above, there are many specific tasks working capital loans can assist with. One is pouncing on opportunities, such as when supplies are offered at a discount. Another is to enhance employee benefits packages to retain and attract talent.
Like any funding source, borrowers need to be realistic and careful about repaying working capital loans. However, if used correctly, these loans can keep businesses afloat in rough times and help them thrive in good ones.
Whether you’re interested in learning more about financing or another business topic, be sure to take a look at Ambition Funding Solutions’ other blog posts.