Working Capital

Written by Josh Dodes
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Even those small businesses that appear to differ completely from one another on the surface will invariably share a trait in common: a need for an infusion of working capital when they least expect it. Ironically, however, such businesses typically share another trait: the frustration that results from being turned down for loans. The good news is that a common solution to this situation has finally emerged.

Drawing upon years of experience in serving the small business community, a handful of financial experts have recently devised a new type of lending structure, one that more closely fits the needs and capacities of smaller businesses. Fundamentally, this structure mimics a traditional loan, providing business owners with immediate working capital in exchange for a set repayment plan. However, in two essential details, these alternative loans differ from and improve upon their traditional counterparts.

A Next-Generation Approach to Working Capital

The most substantial manner in which alternative loans differ from their predecessors is in the relationship between lender and borrower. Rather than simply lending money and expecting repayment, these firms actually purchase in advance, at a discount, a set value of your future sales. Consequently, lender and borrower take on something more akin to a partnership agreement, allowing you to pay the borrowed working capital back only as and to the extent that you make money yourself.

The security of essentially attaching a set percentage of your future earnings allows these lenders to confidently enact the second major variation on traditional loan structures: the elimination of the need for you to provide upfront collateral. In this way, alternative lenders are able to far more effectively meet the unique needs and limitations of small business owners. The result is a loan for which nearly anyone can qualify, and which nearly anyone can comfortably repay, regardless of increases and decreases in income.

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