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Working Capital Necessary For Every Business

Aug 17, 2007
Working capital is the amount of capital required to carry on a business. It can be a problem for businesses to obtain the necessary working capital, especially when they are starting up, and that is why it is so important for businesses to know all that they can about obtaining the necessary capital to build their business properly. Whether a business is small or large the same programs are available to those seeking financing.

Business micro loans are one source for getting working capital. These are smaller loans, which are typically between $5,000 and $35,000, and are targeted to startups and newly established small businesses. This program is established by the Small Business Administration. Non-profit community lenders are given the money by the SBA, and they make the decisions on who gets the loans. Micro loans have terms of up to six years, and requirements by lenders vary. If you decide to get a micro loan be prepared with collateral, and also be prepared to personally guarantee the loan. Specific training and business planning requirements must be fulfilled before a micro loan will be accepted as well.

Credit card receipt advances, also known as merchant advances, is a fairly new, but effective method for obtaining working capital. This method allows for an immediate cash injection because the lending source will buy your future credit card receipts in the form of a cash advance. The great thing about this option is that you can apply with poor or under established personal or business credit. The requirement is that your business processes a minimum of $2,500 per month. After meeting that requirement your business will be advanced up to $100,000. The amount that you can receive is established from current sales receipts. A small percentage will be deducted from your ongoing credit card receipts, and there are no fixed payments or fixed repayment terms.

Working capital can also be obtained by selling your account receivables. There are many advantages to this option including not having to give up equity, you can purchase in volume from suppliers, you can eliminate bad debt, and there is no additional debt accrued because selling account receivables is not considered a loan.

Business credit cards give you another option for obtaining working capital, and they provide your business with a great amount of flexibility. You can track employee expenses, smooth out the process of cash advances, you can reduce some operating expenses, maximize the potential of cash flow, and they can also help businesses with their vendor relationships. Make sure that when you are looking at a business credit card that it reports to the Small Business Financial Exchange. This ensures that the card will help build up your business credit scores so you can secure larger loans down the road. If the business credit card is not reporting, you won't be gaining all of the benefits you can out of your business credit cards.

The equity loan allows businesses to obtain working capital through investment banks that provide capital secured by the equity or ownership of shares in a company. Companies that typically get this form of loans are in a market that is growing quickly, or they have established a niche for themselves. An equity loan is typically between $1 Million and $2 Million dollars initially with the potential of the loan being more over the life of the loan.

There are many other options for financing a business, and so it is recommended that you find a business capital search engine online to make sure you find all of the financing options for your business.
About the Author
Corey Pierce is the CEO of BusinessFinance.com a business capital search engine with the funding criteria of 4,000+ sources for business capital. Visit www.businessfinance.com to search the funding directory for free. Pierce is also the creator of the Business Finance Coach found at www.businessfinancecoach.com.
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