Working Capital

Working capital can be used for just about any normal business expense.

That can include:

• Payroll
• Inventory
• Marketing
• Materials
• Repairs
• Insurance
• Taxes
• Expansion
• Emergency expenses
• New contracts
• General operating expenses

The right type of working capital depends on the business.

Some companies may qualify for a traditional line of credit.

Others may need a revenue-based working capital program.

Some businesses may be better off using equipment financing, a commercial loan, or another product instead.

That is why I do not think every working capital request should automatically go into the same type of financing.

What Is Working Capital?

Working capital is money used to operate the business.

It is different from financing a long-term asset like a building or a piece of equipment.

A business may need working capital because revenue does not always come in at the same time expenses are due.

For example:

A contractor may need to pay for materials and labor before getting paid by the customer.

A trucking company may have to cover fuel, repairs, insurance, and payroll before invoices are collected.

A restaurant may need inventory and payroll before weekend sales come in.

A growing business can be profitable and still have cash-flow problems.

What Can Working Capital Be Used For?

Depending on the financing program, working capital may be used for:

• Payroll
• Inventory
• Advertising
• Marketing
• Materials
• Business expansion
• Hiring employees
• Repairs
• Taxes
• Insurance
• Rent
• Utilities
• Seasonal expenses
• New contracts
• General business expenses

The important question is not just whether the business can get money.

The bigger question is whether the financing helps the business.

Revenue-Based Working Capital

Revenue-based working capital is one of the most common options for businesses that may not qualify for traditional bank financing.

These programs usually focus heavily on the cash flow of the business.

The lender may review:

• Monthly revenue
• Business bank deposits
• Time in business
• Average daily balances
• Negative balance days
• Existing debt
• Personal credit
• Overall cash flow

A business with strong monthly revenue may still have options even if the owner’s credit is not perfect.

Does Credit Matter for Working Capital?

Yes.

But credit is not always the only thing that matters.

Some lenders are very credit-sensitive.

Others focus more heavily on business revenue and bank activity.

For example, a business owner with a 580 credit score and $100,000 per month in deposits may be looked at differently than someone with the same credit score and $10,000 per month in deposits.

The score is the same.

The business is not.

How Much Revenue Do You Need?

There is no single minimum that applies to every lender.

Some lenders will consider smaller businesses.

Others are looking for businesses with much higher monthly revenue.

The amount of financing available may depend on:

• Monthly deposits
• Time in business
• Credit
• Existing debt
• Bank activity
• Industry
• Overall business strength

I do not like giving a hard number before looking at the file because every lender calculates approvals differently.

How Long Do You Need to Be in Business?

That depends on the program.

Some lenders may consider newer businesses.

Others may want a year or more of operating history.

More time in business usually helps.

It gives the lender more history to review and can make the transaction easier.

Business Line of Credit

A business line of credit can be one of the best working capital options for a stronger borrower.

Instead of taking all of the money at once, the business may be able to draw funds as needed.

That can be useful for:

• Seasonal expenses
• Inventory
• Short-term cash-flow needs
• Emergency expenses
• New contracts

A line of credit may also be less expensive than short-term revenue-based financing.

The tradeoff is that qualification can be stricter.

Working Capital With Bad Credit

Bad credit does not always eliminate every option.

Some working capital programs may consider borrowers with weaker personal credit if the business itself is strong enough.

The lender may focus on:

• Monthly revenue
• Time in business
• Bank deposits
• Negative balance days
• Existing payments
• Industry

The financing may be more expensive.

The payment may also be shorter or more frequent.

But weaker credit does not automatically mean the business cannot qualify.

Explore Bad Credit Equipment Loans.

Working Capital for Newer Businesses

Newer businesses can be more difficult to finance.

A lender has less history to review.

That means other factors may become more important.

Those can include:

• Personal credit
• Revenue
• Industry
• Business experience
• Bank activity
• Cash reserves

A newer business that is already producing strong revenue may have more options than a startup with almost no deposits.

Merchant Cash Advance

A merchant cash advance, often called an MCA, is another type of business funding based heavily on business revenue.

It can be useful when:

• The business needs money quickly
• Credit is weaker
• Traditional financing is not available
• Revenue is strong enough to support the payment

But an MCA can also be expensive.

That is why I think it should be used carefully.

If the business already has multiple MCA positions, adding another one may create a bigger cash-flow problem.

Learn More About Merchant Cash Advances

MCA Consolidation

If a business already has several merchant cash advances, consolidation may be worth reviewing.

Depending on the program, the goal may be to:

• Pay off existing positions
• Reduce daily or weekly payment pressure
• Improve cash flow
• Restructure the business’s current obligations

Sometimes consolidation makes more sense than adding another advance.

Learn More About MCA Consolidation

Sale-Leaseback as a Working Capital Option

A sale-leaseback can be another way to create working capital.

If a business owns equipment free and clear, a lender may be able to purchase the equipment and lease it back to the business.

The company keeps using the equipment.

But it receives cash from the transaction.

That cash can then be used for other business needs.

A sale-leaseback can be useful when:

• The business owns valuable equipment
• The equipment is paid off
• The business needs working capital
• Traditional financing is difficult

Not every piece of equipment qualifies.

The lender will look at value, age, condition, and resale market.

Working Capital vs Equipment Financing

If the main reason you need money is to purchase equipment, I would usually look at equipment financing first.

Using short-term working capital to finance a long-term asset may not be the best structure.

Equipment financing may provide:

• Longer terms
• Lower payments
• Better use of cash flow
• Financing tied directly to the equipment

Working capital may be a better fit for things like:

• Payroll
• Inventory
• Marketing
• Materials
• Short-term business expenses

Learn More About Equipment Financing

Working Capital vs Commercial Loan

A commercial loan may make more sense if the business needs money for:

• Commercial real estate
• A large expansion
• A business acquisition
• Long-term construction
• A major project

Working capital is generally better for shorter-term operating needs.

Again, the financing should match what the money is being used for.

Learn More About Commercial Loans

Why Stacking Debt Can Become a Problem

One of the biggest problems I see is businesses taking new financing without looking at the total payment burden.

One loan may be manageable.

A second may still be manageable.

By the time the business has several daily or weekly payments, cash flow can become very tight.

That can happen even when revenue is strong.

Before taking another working capital position, I like to look at:

• Monthly revenue
• Existing payments
• Current balances
• Bank activity
• Overall cash flow

Sometimes more money helps.

Sometimes it makes the situation worse.

When Does Working Capital Make Sense?

Working capital may make sense when:

• The business is profitable
• The money is needed for a specific purpose
• The payment fits within cash flow
• The financing should help generate additional revenue
• The business understands the total repayment obligation

For example, using working capital to buy inventory that turns quickly may make sense.

Using expensive financing to cover ongoing losses usually does not.

When Might Working Capital Not Make Sense?

It may not be the best choice when:

• The business already has too much debt
• The payment will create a cash-flow problem
• There is no clear use for the money
• The business is consistently losing money
• A less expensive financing option is available
• The money is being used to pay off one short-term advance with another

The goal should be to improve the business.

Not just get more money.

How Fast Can Working Capital Fund?

Some working capital programs can move quickly.

The exact timing depends on:

• Application
• Bank statements
• Revenue
• Existing debt
• Verification
• Loan size
• Business complexity

A straightforward file with complete documentation will usually move faster than a complicated transaction.

What Documents Are Usually Needed?

For many working capital programs, the starting documents are simple.

That may include:

• Business application
• Recent business bank statements
• Driver’s license
• Voided business check
• Basic business information

Larger transactions may require more documentation.

Why Work With a Broker?

Different lenders look at businesses differently.

One lender may like:

• Construction

Another may prefer:

• Trucking
• Restaurants
• Medical
• Manufacturing
• Retail

One may work with weaker credit.

Another may want cleaner bank statements.

One may allow existing positions.

Another may not.

My job is to look at the business and determine which financing sources may actually make sense.

The goal is not to send the application everywhere.

The goal is to find the best realistic options for the situation.

What Information Do I Need to Get Started?

You do not need a full loan package just to see whether working capital may be available.

A good starting point is:

• Monthly revenue
• Time in business
• Industry
• State
• Approximate credit
• Amount requested
• Intended use of funds
• Existing business debt
• Number of current MCA positions, if any

From there, I can usually get a pretty good idea of which direction makes sense.

Need Working Capital?

If your business needs money for payroll, inventory, expansion, materials, repairs, or another business expense, tell me what you are trying to accomplish.

I can review the situation and help determine whether working capital, a line of credit, equipment financing, or another business financing option may make more sense.

Call or text Shawn at (714) 271-8524 or email Info@TheBroker.Finance to discuss your working capital options.

Learn More About Merchant Cash Advances

Learn More About MCA Consolidation

Explore Business Financing Options

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All financing is subject to lender approval, underwriting, documentation, business performance, program availability, and lender-specific requirements. Financing costs and repayment structures vary by program and should be reviewed carefully before accepting an offer.