Types of Working Capital Loans
There are three core financing options to obtain working capital for a small business:
1. Short Term Loans
A short-term business loan is a fixed amount of working capital borrowed from a lender with an agreed-upon APR. You pay it back with regular payments based on a specified term length.
When you think of working capital financing, the most common option is a short-term loan. They have no collateral requirements.
2. Business Line of Credit
A business line of credit works similar to a home equity line or credit card. You get approved for a fixed amount of capital that you can utilize on an as-needed basis.
You only pay interest on the funds you use and build up your credit score in the process. There are no pre-payment penalties.
3. Invoice Factoring
Invoice factoring, also known as invoice financing, allows you to borrow money by using outstanding invoices as collateral. Lenders provide you up to 99% of the invoice amounts upfront, with the remaining balance paid to you once the unpaid invoices are cleared.