What is a Small Business Working Capital Loan?
Working capital loans are financial aids that cover operational costs. This may either be a long-term or a short-term loan. A small business working capital loan is a financing that aims to support the operating expenses of small businesses.
Working capital is considered the lifeblood of businesses – big and small. Working capital funds the expenses for purchasing of supplies and products. It may also help in consolidating bills, rent, and other payables. It can be used for paying taxes and employee benefits. It can also cover advertising fees, expanding and renovating assets, and other business expenditures.
Working capital loans can be used to promote the development and growth of your business and cover day-to-day expenses. This financing tools helps business owners to carry on with the daily operations despite some financial setbacks.
Credit scores are considered when qualifying for a working capital loan. Business owners who have excellent credit standing typically qualify for affordable working capital loans. There are lenders, however, who do lot require a credit score. So, even if you have no credit history or have a poor credit rating, you may still qualify for this loan.
Working capital loans are categorized according to the purpose for which the loan is taken out:
- For day-to-day needs
These are working capital loans that are used to cover maintenance cost, payroll, inventory, and daily management expenses. Financial institutions may offer up to $500,000 depending on your credit score. Loan term also varies between 3 to 36 months.
- For large purchases
These are working capital loans used to purchase equipment or machines. Some use the loan amount for minor expansions or renovations. Business owners who want to access this loan may choose a term loan that will work with their revenue. They may also look into lenders who offer competitive interest rates.
- For unpaid customer invoices
This working capital loan best applies to those who are engaged in business-to-business transactions. In most cases, these businesses encounter cash flow gaps that need to be bridged quickly. This is where working capital loans come in.Know the purpose of your loan application. Is it to cover your daily expenses, or purchase the latest technology? Or will it be to secure late payments of your consumers? Evaluate thoroughly if working capital loan is the best financing solution for you.
When looking for a loan, it is imperative to compare all your financing options. Assess the flexibility of the terms and conditions of their offer, and the interest rate that they offer. You may also want to consider external factors such as customer experience, market scope, company reviews, and lender reputation.
Rule of thumb: Choose wisely, and do not settle for the first offer you get. Take time to compare and evaluate different lenders.
Benefits of Working Capital Loans
A working capital loan is one of the most convenient ways of promoting the potential and harnessing the growth of your business. This is one of the most efficient solutions for small or startup businesses. It can help those that do not have collateral. And it reduces the burden of those who are experiencing some cash flow gaps.
Here are some benefits you may get from small business working capital loans:
- It provides a sense of preparedness
You never know what, how and when problems in your business may arise. It is best to be prepared any time you may need emergency funding. Working capital loans can help emergency funding should the need arises.
- It stabilizes business ownership
In times when your business may need financial augmentation, would you rather accommodate an external investor or apply for a working capital loan? It is true that you have a smaller obligation when you welcome an outside investor. However, it also means that you are giving away part of your business and decision-making rights to your investors. With a working capital loan, your obligation stops the moment you have fully paid the loan. And the best thing is you get to keep the ownership of the business in its entirety.
- It does not always demand collateral
There are 2 major types of loans – secured and unsecured. This is also true in working capital loans. While there are secured working capital loans, there are unsecured ones as well. Unsecured working capital loans are usually offered to small businesses. The business owners should have an excellent credit rating or have little or no risk of defaulting. If you qualify for an unsecured working capital loan, you do not have to worry about posting your assets as collateral.
- It presupposes flexible terms
Working capital loans can be customized according to the purpose of your loan. If you need a short-term loan to cover some emergency situations, there is no need to get a huge amount that has a longer loan term. Optimize your business funding. Access the loan amount that will serve its purpose. This way you may minimize unnecessary business expenses.
- You decide how to use the small working capital loan
As the business owner, you have every right to decide how the loan will be used. If it is for your everyday expenses, machinery upgrades, or store renovation, the decision is yours to make. Just remember that every decision you make may have the slightest or greatest impact on your business.
- It offers a straightforward processing of an application
While it is true that applying for a loan can be tedious and long, this is not the case for some working capital loans. Some lenders that provide working capital loan offer online access for a loan application. All you need to do is to complete loan application forms provided online and wait for about 1 week and the loan is processed. For some, it only takes a few days. There is no need to fuss over waiting in line or being denied after waiting the whole day for your turn.
An online option for a working capital loan is one of the easiest and most efficient ways of applying for a loan. With just a few online application forms, you can process your loan application in the convenience of your home or office.
It may take several days to give lending consultants time to evaluate your application. However, it eliminates the waiting time and the hassle of preparing documents when applying with traditional lenders.
A working capital loan will help build your business credit while reducing the risk of ups and down in your cash flow. Get in touch with us, secure your business with a small business working capital loan, and maintain the integrity of your business.