When Will Working Capital Lending Work Best for Your Business

Working Capital Loans - 4 Min Read

It’s difficult for a company to grow without adequate working capital. And yet most businesses find themselves struggling to maintain the liquid assets they need to survive, let alone grow.

When your profit margins are modest and a good portion of them are locked up in pending receivables, it can be challenging to reinvest in your business.

Working capital provides entrepreneurs and business owners with money they can use to fund essential operations or growth opportunities. We understand that small business owners tend to be risk-averse to the point of hesitation when it comes to borrowing, but there are some instances a working capital loan can dramatically improve the state of a business.

How do I know if a working capital loan is the right solution for my business?

Working capital loans are most effective when the borrower has a clear plan for how they are going to use the money. Some of the best strategic reasons businesses take out working capital loans generally fall into one of three categories:

1. Take advantage of a good business opportunity

One of the main reasons people apply for a working capital loan is to invest in a business venture that will expand their company. If you’re knowledgeable in spotting promising business opportunities, you’ll be able to borrow with confidence and use the funds decisively. Here are a few examples from clients we’ve worked with over the years:

  • A pizza restaurant in North Carolina had the opportunity to break down a wall and take over the space vacated next door, placing 10 new tables into the new space and adding 50% capacity to the restaurant by doing so.
  • An auto-repair shop in Oregon had the opportunity to timely expand and bought out all of the required additional equipment at an affordable price from a competitor who was going out of business. They created 3 times the work capacity in the process.
  • A transport company in Texas had been offered a lucrative new contract, but needed to buy 2 new trucks in order to meet the needs of that contract.

These clients all have two things in common: A great business opportunity, and a need for quick, easy access to the financing required to take advantage of that opportunity.

Here are a few things you can do to identify strong business opportunities for yourself:

  • Ask yourself if the new opportunity will solve a problem in the marketplace. If your company has the opportunity to start offering a new product or service, do some research and find out how large you can expect the demand for it to be. Use tools like Google Consumer Surveys to reach out to your target audience directly and gauge their interest. Or find out what type of products, services and price-points your competitors are offering.

2. A Business Crisis 

Not all businesses require working capital for exciting new opportunities. Sometimes extra cash is needed to deal with an emergency situation that threatens the health of the company. There are many examples, but some that we’ve seen include the following:

  • A bar in Hawaii whose roof collapsed during a particularly bad storm.
  • A meat wholesaler and distribution company in Texas which had one of its main freezers break down.
  • A construction company in Illinois that had its main truck break down just before a large contract was due to commence.

Working capital can be particularly valuable for businesses that have suffered sudden unexpected setbacks of this nature. Working capital loans can be approved much faster than traditional bank loans. Receiving a loan through the SBA can take as long as 90 days from the time the application is filed, but applying for a working capital loan through a private lender can put money in your account in as little as a couple of days.

3. Cash Flow Problems 

The last situation in which working capital can be especially useful is when a business is experiencing cash-flow problems. In these cases, it is strongly recommended that applicants think about how they want to use their funding to solve these problems, and apply for an amount they can effectively use.

However, unlike bank loans, most working capital loan applications do not require the applicant to submit detailed documentation outlining their plans for the money. Working capital loans offer greater flexibility than other forms of borrowing, which allows entrepreneurs the freedom to alter their plans and accommodate new opportunities or challenges.

Learn the facts, take stock of your situation, and make sure you borrow money for the right reasons. Doing so can give you the edge you need to break through to your target market, or the extra help you need to strengthen your company.

Ready to seek a Working Capital Loan for your business? 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.