Seven Ways Business Owners Can Get Financing of Working Capital to Ensure a Successful Business

Working capital is the cash required to run the routine operations of a business. The financing of working capital is usually required by small businesses to cover for immediate expenses such as payment of salaries, maintenance of equipment, payment of lease and for the purchase of raw material. Diverting working capital to long-term needs like the purchase of machinery or expansion of premises may have adverse effects on the smooth working of your business.

A majority of small businesses have seasonal business cycles where their sales witness a spike during a certain quarter. Such enterprises require business capital so that they can take advantage of business eventuality that arise during that window. Manufacturers of festival-related products, for instance, may need to prepare in advance to supply goods to their retailers during the third quarter of a year, when sales hit a peak. For this, they would require financing of working capital to purchase raw materials from suppliers during the lean season, when they are possibly short of business capital. A short-term loan taken during this time would help such a manufacturer to build inventory for the peak season, and be prepared to supply to the retailer when the peak season commences.

The financing of working capital can be met either by taking a business capital loan or through the infusion of equity into the business. Taking a short-term business capital loan lets you retain complete control over your business as compared to equity infusion, where you shall have another partner to deal with. Moreover, financing of working capital is easily available to businesses that have been in operation for some years and have sound business capital. Also, its cost is small when compared to the business advantage you will get through increased sales.

Therefore, to ensure successful functioning of your business, financing of working capital is often required and must be considered as a key ingredient for business growth. The last five years have seen the advent of technology-based FinTech companies that specialise in providing financing of working capital to small businesses. They facilitate several forms of working capital loans to small businesses, each designed to take care of the unique needs of different businesses.

Let us look at these innovative products that FinTech lenders have developed for various working capital needs, below:
1. Short-Term Finance: As the name suggests, such a business capital loan is for short to medium term, usually varying from a few months to two years. Manufacturers, traders and service providers with immediate working capital needs can avail this finance product without producing any collateral. To be eligible for such a business capital loan, you need to be in operation for more than three years and your business financials need to be healthy for a considerable period. Besides, the credit rating of a business needs to be positive to be able to get easy access to such a financing of working capital.

2. Line of Credit or Pay Later Finance: This type of business capital loan is an overdraft facility, again provided to businesses with sound business financials and considerable history of operations. It is akin to the credit cards provided to individuals, so a business has a pre-defined upper limit for taking credit. You pay interest for the period for which the loan amount is withdrawn, with the credit limit being restored on repayment of the loan.

3. Invoice Finance: For businesses that offer credit facility to customers, this kind of financing of working capital helps tide over immediate business requirements. Here, you can utilise the unpaid invoices from blue-chip companies to avail yourself of business capital loan. The loan amount is usually 80% of the invoice value, and can be paid back in instalments or as a one-time payment the moment you receive the invoice payment from your customer.

4. Supply Chain Finance: This is similar to invoice finance, but with a subtle difference. This form of financing for working capital is designed for manufacturers who produce goods for large companies. Businesses that have pending invoices from blue-chip companies can take business capital loan of up to 80% of the value of those invoices. The financing for working capital obtained in such a manner can be used to pay suppliers of raw material and hence start the process for fulfilling other business orders.

5. Merchant Cash Advance: This is an innovative way of arranging financing of working capital. This product is designed for merchants such as hotels, restaurants and supermarkets, which take payments through card machines. Such businesses can take a loan advance up to 200% of their monthly receivables, and pay it back through the deduction of a fixed percentage of the monthly card settlement amount in subsequent months. As the amount deducted varies every month depending on the card settlement of that month, it eliminates the burden of repayment during lean times.

6. Online Seller Finance: Such a business capital loan is designed for merchants who have been selling aggressively through e-commerce marketplaces for at least the last two years. Such merchants can take up to 200% of their monthly transaction volume as financing of working capital and use it to further increase their trade volume.

7. Taxi Finance: One of the several types of working capital finance for taxi companies, this is meant for drivers who are a part of taxi aggregators such as Ola and Uber. FinTech companies have partnered with these radio taxi networks to provide financing of working capital for taxi companies. The loan amount is provided upfront to purchase a new taxi, and instalments are deducted from the earnings of the driver in the subsequent months.

FinTech lenders have revolutionised the finance sector by adopting technology and by providing innovative loan products for different businesses. They provide complete transparency in the loan application process and their loan repayment terms are very flexible. These new-age lenders enable business owners to get financing of working capital to run a successful business with considerable ease.