Learn More about Working Capital Loans
What is a Working Capital Loan?
Working capital loans are loans that are geared to small businesses to help them gain the funding they need to thrive in their industry. Rather than a long-term investment, like that made through private equity investors, you are not required to provide a percentage of your profits to the loan agency.
Rather, the loan agency will offer you a fixed interest rate that never fluctuates over time. The loans are provided on a short-term basis with payment plans customized to your available budget. They can help you cover the continued operational costs of your business, without accruing long-term debts in the process.
Advantages and Disadvantages of a Working Capital Loan
With the loan, you can cover the daily operational costs of your business, including equipment costs, rental fees, and hiring and training staff. They provide a viable solution to small businesses because it enables you to get just enough money to meet your needs while providing flexible payment plans you can pay off over time.
Also, they offer the advantage of being fast to receive, enabling you to get what you need right away. With a loan, you will be better prepared to handle unforeseen business expenses, as you can meet your monthly needs more easily, enabling you to have more money leftover in the event of an emergency.
However, working capital loans can also be somewhat difficult to qualify for, entail higher interest rates, and require ample collateral. These are considerations to take into account prior to applying.
What You Can Do With a Working Capital Loan
The purpose of a working capital loan is to have funds available to pay your business’ financial obligations during a slump in revenue and still allow you to have a cushion of money for emergencies.
Working Capital Loans Can Cover:
- Monthly debt payments
- Payroll for your employees and staff
- Utilities for the business
- Mortgage or rent payments for the business
- Buying inventory or materials required for you to meet customer demand
- Repairs or replacement of required equipment or tools for your business
Finding a Working Capital Loan That Fits
As important as it is to get a solution quickly to meet your needs for business capital, it is vital for you to understand all the fine print before you pursue a specific loan program.
According to huffingtonpost.com, today’s small businesses are seeking alternative funding solutions, online, for short-term capital needs. Sometimes you can find a loan through the Small Business Association (SBA).
Other times, it’s best to go through an alternative lending institution that offers a solution that fits your needs and limits your repayment risks, even if the loan rate is slightly higher.
The idea is it is better to get a loan you need with terms that you can handle than to struggle with a loan product that does not fit your business.
How Do You Qualify for Working Capital Loans?
While qualifications vary among agencies, a working capital loan is not widely available to entrepreneurs. In today’s economy, lenders need assurance that you are good for the money, so collateral of up to 90 percent of the loan amount is required.
Qualifications will depend on your income and projected business earnings, with loan amounts and repayment terms varying based on eligibility. While they have strict eligibility requirements, they are easier to qualify for than traditional business loans, making them a good alternative if you’ve been denied commercial loans.
As a business owner, you need constant capital to cover the continued operational costs of your business, and without consistent loan options, you risk defaulting on your lease. Fortunately, there are a variety of funding methods available to get the money you need.
Working capital loans provide a lot of advantages to business owners by enabling you to get the money you need quickly and providing easy terms for repayment. For all your working capital needs, contact Credibly.