How Does Working Capital Work?

Learn the difference between a line of credit and a working capital loan

What can you do with a working capital loan for your business? The simple answer: literally anything!

  • Are you looking to grow your business?
  • Do you ever have unexpected costs arise?
  • Does your business ever need to place large orders or make expensive purchases?
  • Are you ever stuck waiting on large payments to come through?
  • Are you looking to expand cash flow?

If you answered “yes” to any of these questions, you’ll need working capital (cash) — but how do you get it?

What is working capital?

Working capital is the cash a business has on hand at any given time. It’s used for general day-to-day operational costs like rent, utilities, marketing, payroll, supplies, etc.

Day-to-day operations and, more importantly, growth is difficult when a business is short on working capital. There are a few different options for increasing capital via financing: SBA or bank loans, lines of credit, or the method we’re going to focus on today: the working capital loan.

What are working capital loans? And how do they work?

When you take out a working capital loan, funds are deposited (as cash) directly into your bank account. Once there, the money is yours to use however you see fit – the funds are completely unrestricted. We recommend you use it for business expenses, but it’s truly up to you! You could take a trip to go run with the bulls or swim with sharks if that floats your boat; I won’t judge. (On second thought, scratch that — I want you to survive long enough to pay us back.)

Speaking of payments — within a month or so of receiving the funds, you’ll begin making payments back to your lender.

What’s the difference: Line of credit vs. working capital loan

With a line of credit, you withdraw the funds as needed and make a payment (with interest) each month. You can take smaller chunks of money out at different times, and you’ll be charged interest on whatever you withdraw. Interest rates on a line of credit are usually variable, meaning they’ll change with the federal funds rate. This makes it difficult (if not impossible) to predict what the money you borrow will actually end up costing you.

In contrast, with a working capital loan, the full amount of funds is deposited directly into your account, and you’ll pay back a set amount each month. The interest rate is fixed, meaning it won’t rise over the course of your term (also making this type of loan easy to budget for).

Why choose a working capital loan over an SBA or bank loan?

Speed, ease, and savings!

SBA loan or bank loan

  • Typically require 2-3 years of bank statements
  • Require collateral
  • Hidden fees
  • Slow approval process
  • It usually takes several months to receive funds

Working capital loan*

  • Only your prior three months of bank statements are required
  • Don’t require collateral
  • Same-day approvals
  • Same-day direct deposit
  • Pre-payment discounts (no penalties)
  • Designed to save on interest costs

*Disclaimer: Conditions possibly unique to Geneva Capital

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Troy Putnam

Geneva Capital

As director of sales at Geneva Capital, Troy Putnam leads a team of account managers. His crew is responsible for helping businesses obtain equipment in the sign, screen printing, apparel decoration, and engraving markets. After nearly 15 years in the industry, he has seen firsthand how changing technology, product trends, and economic fluctuations can impact a business's bottom line.

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