Small Business is a Big Deal in America.
There are approximately 28 million small businesses in America, which account for 54% of all sales, employ 55% of the American workforce, and occupy up to 50% of American commercial space, or roughly 34 billion square feet!
And owning a small business is no small investment- one has to budget for employee wages (about 19.4% of total expenses), inventory costs (7.7%), and rent (4.6%), as well as many other expenses, such as equipment and IT maintenance and updates (which over half of American small businesses paid for in 2014), insurance, office supplies, shipping, and the list goes on. It sounds pretty straight forward to budget for all of your business’s necessary expenses ahead of time, but the U.S. Small Business Administration cites insufficient capital as the number two reason for small business failure. Experts say that unplanned expenses- the burst pipe or leaky roof you didn’t plan for- are the biggest reason that people fail to stick to a planned budget and end up spiraling downward into debt.
It’s not easy for a small business to get the lower-interest loans offered through banks or the U.S. Small Business Administration. Although a small business may qualify if it is long-standing and has healthy assets and revenues and the owner has a good credit history, most will not qualify, and these loans are far from easy to attain even for the few that do. Such loans require a mountain of paperwork to apply, and four to six weeks processing. Even after all that, in the past few years banks and the Small Business Administration have seen a combined 85% rejection rate. If a business owner is approved for one of these loans, he or she is discouraged from paying it off early by the penalties banks charge to make up for the interest they expected to make off the borrower. So what’s a business owner to do in the face of emergency expenses? It may be time to look into getting a working capital loan for a small business.
Working capital loans aren’t for investing in equipment updates or growth, but they can be a lifeline in emergency situations. Small business working capital loans can provide secured or unsecured business funding for dire situations, allowing business owners to pay worker wages and settle other debts in the day to day operations of the company. A working capital loan for a small business can be attained very quickly, usually within a week and sometimes within 24 hours of completing a simple application, and many small business working capital loans can be gotten even with poor credit, though a low credit score will get the borrower a higher interest rate. The repayment period is short, usually a year or less for a short term working capital loan and a maximum of five years for a medium term, and usually achieved with small daily installments leaving the business owner’s checking account Monday through Friday rather than a large payment coming due once a month. Because of this setup, lenders like to see that their potential borrowers make many deposits into their checking accounts throughout the month.
However, getting a working capital loan for a small business isn’t without its risks. Interest rates on this kind of small business loan tend to be higher than those offered by a bank or through the U.S. Small Business Administration, with some lenders offering loans at 100% or more. For this reason, funding experts recommend that borrowers are very careful to choose a reputable lending agency. The payment scheme can also cause problems for some borrowers. Although the small daily payments are a more manageable sum than the large monthly hit of a traditional loan, in a truly dire situation a business owner may struggle to maintain a high enough daily balance in his or her checking account to make the payments. No matter the size of the loan, the lender will report it to TransUnion, Experian and Equifax, so missing payments will negatively impact the business’s or business owner’s credit.
Would your company benefit from a working capital loan for a small business?