When it comes to running your business, it pays to always prepare for the unexpected. This preparation should also extend to your cash flow and working capital.
Many entrepreneurs can attest to how volatile the business world can get. That being said, forecasting changes that can financially impact the business would be difficult, if not impossible.
Fortunately, there’s working capital loan.
What are some of the enticing benefits of this type of loan?
Working capital loans are fast and easy to obtain.
A working capital loan is your best option if you need money and you need it fast. Typical personal or business loans often take a lot of time before it gets approved.
In most cases, those types of loans also entail excessive paperwork, personal guarantees, collateral, and restrictions on how the money is going to be utilized.
With a working capital loan however, you get access to the money almost instantaneously, typically within a week once your application gets accepted.
You can utilize the loan however you deem fit.
When it comes to how you use money, lenders and banks often have very few restrictions. In essence, it is a given that you will use the working capital loan you have obtained to fuel your company’s growth, maintain your operations, and increase your opportunities to earn revenue.
You maintain control and ownership of your company.
If you got business funding help from an equity investor, that means you would need to give up a significant percentage of your company in return. This can also mean you won’t be the only one making the business decisions anymore.
However, if you get funding from other financial institutions like banks, your only likely obligation is to make the payments on the agreed time. That is often where your obligation ends. In other words, you still have the freedom to run your business however you choose and make decisions according to how you see fit.
You are not required to provide any collateral.
In essence, there are two loan types—unsecured and secured. Working capital loans come in both types although it often comes unsecured.
Unsecured working capital loans are often given to small businesses with good credit history.
If you qualify, you will not be required to put up your inventory, business, or anything else just to secure the loan.
What are some of the most common types of working capital loans?
This type of loan comes with a fixed payment period and interest rate. In most cases, the repayment period is 12 months. Oftentimes, this type of credit facility is secured.
However, if you have a good credit history and a good working relationship with the lender, you are likely to be given short-term loan sans collateral.
Accounts Receivable Loan
Another way to secure alternative working capital is through loans that consider your company’s sales order value or accounts receivable. This type of loan is ideal if you lack the funding to fulfill an order or sales contract.
Understandably, this type of loan is often only given to reputable businesses or those with proven track records of paying obligations and debts on schedule.
Advances or factoring
This type of loan is similar in a way to the accounts receivable loan. However, instead of relying on accounts receivable or confirmed orders, the loan’s value will be based on future credit card receipts. This type of loan is typically granted only to businesses that accept credit card payments.
While working capital loans aren’t for every business, there might be a need for one at one point in the venture or another. Fortunately, there are many options available at your disposal and you can easily secure one to get your business back on track in record time.