Working Capital Loans

Working capital is the difference between a company’s current assets and current liabilities. In simple terms, it is the liquid cash at the disposal of a company to cover immediate expenses. Short-term expenses like operating expenses, inventory and payments on short-term debt are covered by a company’s working capital. It helps a company run smoothly and handle its financial responsibilities within the coming year without any issue. 

A number of businesses have seasonality that requires a loan for new inventories. Small business financing such as working capital loans help businesses with irregular revenue to run its operations. 

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What is a working capital loan?

A working capital loan is short-term financial aid a company avails to cover operating expenses. The short-term operational needs include costs like rent, debt payments, payroll, inventory etc. A working capital loan comes in handy for businesses to cover these costs effectively and improves the business’s credit score.

Why should you take a working capital loan?

As working capital is derived by subtracting current liabilities from current assets, it can be positive or negative. A positive figure suggests that a company is stable and can operate during a lean season without any issues. However, businesses that have high seasonality suffer from an unstable working capital. Financial institutions provide SMEs and businesses with working capital advances at affordable interest rates to help them function during the lean season. 

A working capital loan is not a need specific loan, meaning it can be used for any purpose by the business to cover its expenses. The affordable interest rates for these commercial loans make it useful for businesses to use it for relocation, expansion or to introduce new products

Contact us today for a free evaluation of your financing needs from one of our finance specialists.

Purchase Order Loan

Purchase order financing is a short-term financing method that businesses can use to cover the cost of manufacturing or purchasing goods that have been presold to customers via a purchase order.

A purchase order loan example

If a business receives a purchase order from a customer for goods the business does not have in stock. To fill the order, the business will need to either manufacture the products or purchase them from another business, but the business does not have the cash on hand.

Instead of turning away business, a purchase order financing company pays the business suppliers directly. Once you fulfill the order, you invoice the client and have them pay the finance company. Then the financing company sends the payment (minus its fee) to the producing business.

This process allows you to fill orders without having to wait for the funds to come through from the buyer.

How does purchase order financing work?

One of the ways purchase order financing differs from a normal business loan is that there are more parties involved. A business loan involves only the lender and you as the borrower. But with purchase order financing, there are four parties involved: your business, the purchase order financing company, your customer and the supplier.

An overview of how the process works:

  • Your Company receives an order for a product from a customer,  your company does not have the product in inventory and is short money to purchase materials.
  • You apply for purchase order financing to a financing company in order to fill the order.
  • The purchase order financing company pays the supplier to manufacture and deliver the order.
  • Your Company invoices your customer.
  • The customer pays the financing company.
  • The financing company deducts its fee and transfers funds to your company.