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How do you apply for a working capital loan?

How do you apply for a working capital loan?

Invoice factoring:Invoice factoring, also known as accounts receivable financing, is similar to a merchant cash advance in that it is not related to credit but a business’s sales. A business sells a lender (or “factor”) its uncollected accounts receivable for a significant portion of the total value upfront. The factor then works to collect the outstanding payments and keeps the remaining percentage of the total value not paid to the business. Invoice factoring is generally considered less risky than a merchant cash advance for one simple reason: It’s based on existing accounts receivable that have not yet been collected, while merchant cash advances are based on projected future sales rather than an existing asset.

  • Equipment loan:Equipment loans are specifically intended for the acquisition or lease of equipment a business needs to operate. Generally, these loans are backed by the equipment itself as collateral rather than a business’s credit; if the business fails to repay the loan, the equipment can be repossessed.

Borrowers who require a working capital loan might need it for the same reasons a company seeks out a merchant cash advance, such as to pay employee wages, purchase equipment, acquire new properties or expand inventory. They are also commonly used by seasonal businesses or those with cyclical sales. [Read related article: How to Decide Which Type of Business Loan Is Right for You]

Epps said some lenders will ask for an overview of your business’s sales, so it’s important to collect several months’ worth of bank statements, balance sheets and tax returns. You will also need to provide your Employer Identification Number, your business mortgage or lease documentation, and your business credit score.В

Before you apply for a working capital loan, you should understand how much it costs to cover your day-to-day expenses so you’ll know how much capital to ask for