Understand your
financing options.

Working capital is the cash your business has available to cover day-to-day operations — payroll, rent, inventory, and the gap between paying suppliers and getting paid by customers. A common measure is current assets minus current liabilities.

How much you need depends on your cash cycle. Businesses with long gaps between spending and getting paid (say, contractors or wholesalers) generally need a larger cushion than those paid at the point of sale. A simple starting point is to know how many months your cash on hand would cover at your current burn.

A merchant cash advance or revenue-based advance is usually priced with a factor rate — for example 1.30. You multiply the amount advanced by the factor rate to get the total you repay. Borrow $50,000 at 1.30 and you repay $65,000, so the cost of capital is $15,000.

A factor rate is not an interest rate. Because you repay over a short window, the effective APR-equivalent can be much higher than the factor rate makes it look. Translating the two is the single most useful thing you can do before signing.

A term loan gives you a lump sum up front that you repay on a fixed schedule. It suits one-time, known costs — buying equipment, funding an expansion, or consolidating debt.

A line of credit is revolving: you draw what you need, pay interest only on what you use, and the credit replenishes as you repay. It suits recurring or unpredictable needs — smoothing cash flow, covering a seasonal dip, or bridging the wait on receivables.

Debt service coverage ratio (DSCR) measures whether a property's income covers its debt payments. It is the net operating income divided by the annual debt service. A DSCR of 1.25 means the property earns 25% more than it needs to cover the loan.

Many investor loans look for a DSCR at or above 1.25, because it signals the property can carry itself with a margin of safety. Below 1.0 means the income does not cover the payments.

APR (annual percentage rate) describes the yearly cost of borrowing, typically including certain fees. Lower is better when you are the borrower.

APY (annual percentage yield) describes what you earn on savings, and it accounts for compounding — interest earning interest. Higher is better when you are the saver. The same nominal rate produces a higher APY the more often it compounds.

Invoice factoring turns unpaid invoices into cash now. You sell an outstanding invoice to a factor at a discount and receive most of its value up front; the factor collects from your customer and remits the rest, less its fee.

It can bridge the gap when customers pay on 30, 60, or 90-day terms. Because repayment comes from your customer, the factor often weighs your customers' credit as much as your own.