Securing Working Capital for California Businesses

Securing Working Capital for California Businesses
Securing Working Capital for California Businesses

The search for working capital for California businesses continues as it has always been, but in recent years it seems that banks simply aren’t cooperating as much as they used to. Not only do they often reject loan applications much more frequently nowadays, but even if they eventually grant a loan the process takes too long. When a California business realizes that it doesn’t have enough cash reserves to pay rent and utilities, payroll and the purchase of raw materials, a standard loan application just won’t do.

Fortunately, working capital for California businesses can be secured with alternate methods that are becoming more popular lately such as:

1.     Vendor financing. Your own suppliers may be able to help you hold on to your working capital, if they agree to extend payment terms for a longer period, such as extending from 30 days to 60 or even 90 days.

2.     Social lending. Also known as peer to peer lending, these websites match up lenders with borrowers for a fee. These are generally for small amounts, averaging around $7,000 and rarely exceeding $25,000. The terms are usually for three years, with interest rates ranging from 9% to almost 20%.

3.     Credit unions. These are member-owned financial co-ops, and you have to be a member to get a loan. These are great alternatives to banks, since they don’t really rely on credit scores but instead try to evaluate the borrower’s track record or business model. In California, credit union loans are growing at a significant rate.

4.     Unsecured loans. Perhaps the most popular type of unsecured loans is by using a credit card to provide the working capital a company needs. There’s also a version called a “signature loan” based on a person’s credit history. Essentially, the borrower gives a personal guarantee that they will service the loan.

5.     Pre-settlement lawsuit financing. If your current working capital difficulties are due to an ongoing civil suit, a loan provider who thinks you’ll eventually get some money in a settlement may offer you a percentage of the expected settlement (10% is common) for a larger percentage (such as 40%) of the reward you get. The advantage here is that if you don’t get any reward in the suit, you don’t have to pay back the advance.

6.     Merchant cash advance. You get the cash today, and in return you pay a percentage of your credit card sales to the lender until the debt is paid plus interest. The big advantage here is that there’s no risk of being unable to miss a payment, because a month with low credit card sales mean a lower monthly payment. There’s even a California version that limits annual interest rates to about 12%.

7.     Factoring. With factoring, you get a big chunk of your accounts receivable (about 80% is common) immediately so you can use it as working capital instead of waiting for your client to pay in 60 to 90 days.

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Chris Lanchech

Hi everyone, my name is Chris and I am a junior analyst at Neebo Capital and an inspiring blogger. We enjoy speaking with business owners and entrepreneurs who come to Neebo Capital looking for cash flow solutions. Give us a call toll free at 1-888-382-3766 or Visit us online at www.neebocapital.com

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