It’s not uncommon for small businesses to find themselves in a dire situation when they lack sufficient funds to continue their business and daily functions. Luckily enough, a working capital loan helps those who need to purchase operational activities without risking your liquid assets. We care about all types of businesses in their success and offer several types of loans to support business owners like you. You may be wondering what exactly a working capital loan is and what it means to you and your business, throughout the blog we will overview the highlights of the capital loan and how it may save your business.
What is a Working Capital Loan
As previously said, working capital represents a type of loan to either small, medium, and large businesses who are in need of money to cover certain expenses. Whether it may be electricity expenses to short-term financial payments, working capital loan serves to help businesses strive in their market without the anxiety of overdue payments.
One common misconception about a working capital loan is it covers all long term assets and future investments. In truth, this loan only supports day to day operations and to overall, assists your business in its financial function. Fortunately, this loan does offer a low-interest rate so you can avoid another financial dilemma and begin financing your long term assets.
In order to decipher how much capital loan is needed to cover the rest of your expenses; all businesses require calculating a working capital ratio. The calculation is simple as is since a business will only have to calculate current assets divided by current liabilities. If your ratio is below a 1.2 then it’s time to consider reapportioning your budget and taking out a loan, but if it's greater than 2.0 then your business is right on track and all financial outlets are evened out.
Pros
As a small business, it’s important to be informed on the beneficial factors to being financed by another loan. Earlier in the blog we mentioned the perk of low interest rate compared to other loans with high interest rates, but, capital loans offer other benefits as well.
- No Collateral Required: Unlike other financial loans, working capital offers businesses the financial benefit of relief from expenses while no requirement for collateral. It’s understood the financial responsibility you must uphold and it may seem more difficult to provide collateral along the way, luckily, you won’t need to abide by these certain loans and instead focus on a steady low interest rate.
- Immediate Loan: While other loans take weeks to months for approval, working capital provides an efficient process for those who seek financial assistance immediately. No longer worry about a tedious approval process and attain the appropriate amount of funding to continue your business.
Cons
As it is important to inform yourself of the beneficial factors to a loan, it is also dire to understand the financial risks.
- Repayment Timeline: Just as you are able to take out a loan immediately, you are also liable to pay back the loan in a fast manner. Payments are low-interest rate but require immediate deposits.
- Possible High Interest Rate: If you have a poor credit history then you may have to pay a higher interest rate with long term payments. Generally, lenders must ensure a low-risk of repayment by instituting a higher interest rate but do offer low interest to those who have a good standing.
Grow Your Business’s Potential
As business owners, we hunger for growth and abundant opportunities for our business. It’s time you ensure the continuation of your potential by applying for a working capital loan, so you won’t find yourself in a financial predicament. Contact us today for future endeavors and expansion to your business.