What Is a Working Capital Line of Credit?

A working capital line of credit is a type of financing that business owners apply for and use to pay for day-to-day operating expenses. This financing option is a revolving line of credit that allows businesses to withdraw and repay capital up to their credit limit as many times as they need.

Working capital is a term used to describe a company’s liquidity. Working capital equals current assets minus current liabilities. A business is considered liquid when it can pay its current liabilities or accounts payable. As the name suggests, a working capital loan covers operational costs like salaries, rent, and inventory. In contrast, some small business loans can only be used to invest in one specific purpose, like buying real estate.

A working capital loan offers a short-term loan option to small business owners experiencing cash flow gaps or seasonal slumps. Since it’s a business line of credit, you can withdraw from your line of credit whenever you want. You’ll repay the funds over a set amount of time and pay interest, but you’ll only be charged interest for the amount you borrow. Like a business credit card, you only pay back what you end up using, compared to a short-term loan product like a merchant cash advance, where you repay a lump sum in monthly payments.

Example Uses of a Working Capital Line of Credit

One of the main advantages of a working capital line of credit is the flexibility it offers. You can use the funds to pay for almost any day-to-day business expenses.

Here are some ways to use working capital lines of credit as a funding option to grow your business:

  • Fill cash flow gaps. Gaps in cash flow can happen to any business. Emergencies and broken equipment can deplete your cash reserves. Sometimes, unpaid invoices cause you to wait on accounts receivables. If you’re feeling the pinch, you can make sure your bills are still paid with a line of credit. If your business operates with many invoices, contact us to discuss invoice factoring options.

  • Get seasonal funding. Seasonal businesses typically use the funding for extra capital to stock up on inventory or hire more people to prepare for a busy season. At other times, a working capital line of credit helps keep business operations going when sales are low and less money is coming in.

  • Cover operational costs. Working capital lines of credit help new businesses and startups run as they grow and expand their customer base.

  • Take advantage of profitable opportunities. Businesses use lines of credit to deliver large, unexpected orders that they may not be able to produce without additional capital. The funds also help business owners take advantage of discounts and save money by buying materials or inventory in bulk.

When Is a Working Capital Line of Credit a Good Idea?

A working capital line of credit is a good idea if your business needs flexibility in terms of how you can use the funds. Unlike bank loans and other financing options, working capital lines of credit allow you to use the money you borrow in any way you see fit. You can use it to pay your employees, order inventories in bulk, get broken equipment repaired, or get your balance sheet back on track.

If you need access to funds quickly, a working capital line of credit is a great option. Online lenders typically offer this type of business financing, so it’s fast and easy to secure. Online lenders ask for fewer requirements and approve loans quicker compared to traditional banks or loan programs like SBA loans from the U.S. Small Business Administration. Working capital lines of credit are typically unsecured, meaning you don’t need to put up collateral to receive one, but you may need a personal guarantee.

A working capital line of credit is also an excellent option if you just want to make sure you have access to funds in the future. Since you only pay for the amount you borrow, you’re not liable until you use the money.

Connect with a Clarify adviser today to discuss your application for a working capital line of credit. It can bring you peace of mind to have funds in your back pocket that you can access whenever you need them. Plus, you can use the money for any working capital needs, like emergencies, or take advantage of profitable opportunities with no limitations.

How Do I Qualify for a Working Capital Line of Credit?

Clarify Capital works with more than 75 lenders in our marketplace, so qualifying for a line of credit is simple and fast. Here are a few eligibility requirements that lenders may require for working capital lines of credit:

  • Time in business. To qualify for a loan, we recommend that your company has been operational for at least six months. Lenders assume risk to provide you with financing. They use your time in business to assess your creditworthiness. The rationale is that the longer you’ve been in business, the lower the risk for lenders.

  • Proof of average monthly income. Most lenders ask you to be able to show that your business makes at least $10,000 per month on average. Loan providers want assurance that you have the income to pay back your loans. The loan amount you qualify for is also calculated from your monthly revenue or annual revenue.

  • Credit rating. At Clarify Capital, we recommend that borrowers have a minimum personal credit score of 550. Although we can help you secure working capital loans with poor or bad credit, your credit history determines the interest rate you get. This is why you shouldn’t ignore your credit score: It’s one factor that lenders and financial institutions look at when you apply for any loan. Track your credit score from the three major credit reporting agencies: Equifax, Experian, and TransUnion.

How Does Clarify Capital Work to Get You the Best Working Capital Line of Credit?

At Clarify Capital, we understand that you don’t have the time to look for the right funding for your business. As soon as you contact us, a dedicated adviser will greet you and work with you throughout the process.

Our mission is to help you achieve your business goals by getting you the funding you need with favorable repayment terms. We make the application process quick and easy for you. To start, you can complete the online application or call us directly.

Your Clarify adviser will help you choose the best financing option for you. The adviser is also there to help you understand the loan terms to which you’re agreeing. Submit your loan application and expect funds in your business bank account in as little as one business day.

If you’re looking for an affordable and flexible business financing option, contact a Clarify adviser today to discuss the types of working capital loans we offer. Get the funding you need quickly to cover everyday business expenses or invest in a money-making opportunity.

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