Do You Know the Critical Difference Between Working Capital Loans and Bank Loans?

Working Capital Loans - 2 Min Read

Across the country, more and more small and mid-sized business owners are becoming aware of the significant differences between working capital loans and banks loans. For example, compared to bank loans, working capital loans require no collateral, the application process is MUCH faster and easier, flawless credit isn’t necessary, and a business history of a few months (compared to a few years!) is typically sufficient.

And while any one of these differences is enough to convince many business owners that a working capital loan is a smarter and simpler option than a traditional bank loan, there’s one other difference that is somewhat lesser-known, but for some business owners can make ALL the difference: an early pre-payment option.

Why Banks DON’T Want Your Money Sooner than Scheduled

Have you ever lent money to a family member or friend, and found yourself in the pleasant position of getting your money back – either in part or in whole — earlier than you expected? Well, banks don’t find that kind of thing pleasant. In fact, they hate it.

Why? Because banks build their profit into the interest that borrowers are obligated to pay over the duration of the loan. For example, if banks loan $100,000 at 10% interest, they expect to receive at least $110,000 (principal + interest) during the term of the loan.

As such, any attempt to pay the loan back early will trigger pre-payment penalties equal to the expected interest; thus making it pointless for a borrower to take that route. What’s more, banks may (and often do) prohibit borrowers from re-allocating or re-directing their loan to anything else than what was specified in their application.  So for example, a business that borrowed $100,000 to purchase inventory and only spends $75,000 shouldn’t expect to have a free hand with the other $25,000.

There certainly are also many advantages of taking out a working capital loan with your bank. However, if you need more flexibility with what you borrow, they may not be the right option for you and your business.

The Mulligan Funding Working Capital Loan Advantage

At Mulligan Funding, business owners who receive a working capital loan are unreservedly entitled to pay any or all of their loan back earlier than scheduled.

Why do we allow this when banks don’t? Because we’re happy when customers are in a position to pay their loan back early, as it strengthens their balance sheet, helps them save on interest, and tells us that their borrowing experience with us has been successful.

With that being said, borrowers are under absolutely no obligation to repay their loan earlier than scheduled, and what’s more, our customers can re-direct or re-allocate their working capital loan towards any expense, investment or purchase they wish. They don’t have to seek our approval – or even ask our opinion!

Learn More About Our Working Capital Loans

Call Mulligan Funding at 855-326-3564 to discuss your financing options today!

The information shared is intended to be used for informational purposes only and you should independently research and verify.

Note: Prior to January 23, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.