Working Capital
When a well established and profitable business need to finance its operating cycle – the conversion of accounts receivable into cash so it can purchase inventory and pay expenses, the SBA 7(a) program can be used to finance this need. Working capital is the amount of current assets less current liabilities which based on the timing of conversion into cash pays the short term expenses of the business. Shortages of working capital can be caused by steady increased revenue growth, or timing of accounts receivable converting to cash at a slower pace that accounts payable need to be paid.
- Inventory, Bulk Purchase, Overhead, etc.
- 7 Year Term – fully amortized
- No Pre-Payment Penalty
- Purchases must be validated by receipts
- Floating interest rate
- Up to 100% Financing
- No “Turn-Arounds”
When a well established and profitable business need to finance its operating cycle – the conversion of accounts receivable into cash so it can purchase inventory and pay expenses, the SBA 7(a) program can be used to finance this need. Working capital is the amount of current assets less current liabilities which based on the timing of conversion into cash pays the short term expenses of the business. Shortages of working capital can be caused by steady increased revenue growth, or timing of accounts receivable converting to cash at a slower pace that accounts payable need to be paid.
Loans for working capital can be obtain through conventional lending channels but have short terms and several covenants required to be maintained during the term of the loan. In many cases the business will be relying on expected future income from projected growth in sales and these projections can be used under the SBA 7(a) program in making the credit decision. The SBA 7(a) program provides greater flexibility allowing the borrower to preserve working capital and cash flow by financing 100% of the calculated working capital need and allowing full amortization for 7 years.
When the SBA 7(a) is used for working capital the working capital need is validated by receipts, the rate is always indexed to the Prime rate and there is no pre-payment penalty. Again, as with all borrowing requests, “Turn-Arounds” will not be considered.