Working Capital Loan: The Basics

To be a step ahead in the business world, it is imperative to have capital on hand to cover the financial expenses needed in the daily operation of your business.

Fortunately, there’s working capital loan.

In essence, a working capital loan is ideal for companies that are unable to generate the needed revenue to sustain the company’s day-to-day expenses.

What are some of the enticing benefits of working capital loan?

        You will maintain company ownership

If you get funding help from an equity investor, more often than not, you would need to give up a substantial percentage of your company. It would also mean you would be giving up a part of your decision making ability as well.

However, if you borrow funds from banks and other financial institutions, you are only required to make the agreed payments promptly. Basically, that is your only obligation to the lender. You can rest assured you can run your business however you want to without outside interference or influence.

Woman meeting banker to set up her own business

No collateral will be required

Generally, there are two types of loans—unsecured and secured. Working capital loans come in both varieties albeit most are unsecured. However, unsecured working capital loans are often only granted to small businesses that have good credit history and pose little or no risks.

If you are one of those who would quality for an unsecured working capital loan, you won’t be asked to provide any collateral in order to get approval. However, your obligation to pay the agreed amount on time will still be required.

You can use the money however you deem fit

As a whole, banks and other lenders will often have very few (if none at all) restrictions as far as what you will use the money for is concerned. In essence, they just want the funds to be used to maintain the business operations or enhance opportunities for revenue.

In addition, unlike typical business loans that take up a lot of time to process, working capital loans are way easier to secure sans all the hassles other types of loans come with. In most cases, you’d have access to the funds almost immediately, usually a week after the approval.

Shorter and easier repayment scheme

A working capital loan is the best option when you need help for short-term needs and you want it fast. A blip here, a hiccup there, and some needed cash influx are just some of the financial scenarios a working capital loan can easily remedy. And what’s amazing about it is you won’t have to be burdened with loan repayment for years just to pay back what you borrowed.

What are some of the most common types of working capital loans?

Accounts receivable loans

One way to secure a working capital is to apply for loans that take into consideration the confirmed sales order value or the account receivables of your company. This type is ideal if the company has no funds to fulfill an order or a sales contract. However, this kind of working capital loan is often only offered to reputable businesses with a proven track record when it comes to fulfilling obligations and paying debts.

Trade creditor

A loan provided by a potential or present supplier is known as trade creditor working capital loan. This type of loan is often offered by suppliers to those who place bulk orders. Prior to getting approval however, expect the trade creditor to meticulously check the credit history of your company.

Advances or Factoring

This kind of working capital loan is a bit similar to the accounts receivable loan. The only distinct difference is instead of accounts receivable or confirmed orders, the loan’s value will be based on potential credit card receipts. Understandably, this type is often only granted to those businesses that accept payments through credit cards.

Tahir Ismail

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