29
July
2015

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

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 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 immediately 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.

The irony here, of course, is that banks should be jumping for joy when borrowers want to pay back their loan earlier than scheduled – because it means that their customer is financially strong and “in the black”. And if you pay attention to typical bank marketing, they certainly do pride themselves on being a “small and mid-sized business partner”. Well, we’re not marketing experts here, but financially penalizing a business for paying their loan bank early is hardly what real partners are supposed to do.

The Mulligan Funding Working Capital Loan Advantage

At Mulligan Funding, business owners who receive a working capital loan (or a merchant cash advance if the majority of their transactions are by payment card) 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!