Working Capital Loan: What are the Benefits?
Working Capital Loan: What are the Benefits?
When it comes to business, it is ideal to always prepare for the unexpected.
Taking into account how volatile the business world can be, forecasting changes that will have a financial impact on the business would be highly challenging at best, if not impossible.
Fortunately, entrepreneurs have to option to apply for a working capital loan when the need arises.
Benefits
What are some of the benefits of working capital loan that you can’t afford to miss out on?
They are easy and fast to obtain.
If you need money and you need it right away, applying for a working capital loan is one of the best options available for you.
Unlike most personal or business loans, you won’t need to wait for a long time to get approval when applying for a working capital loan.
And unlike other kinds of business loans, it won’t require collateral, personal guarantees, and excessive paperwork.
What’s even better is you won’t be given any restrictions as far as how you will use the money goes.
Typically, with a working capital loan, you will get the money within a week from the approval of your application.
You can use the loan any way you deem fit.
Usually, when it comes to how the borrowers use the money, banks and lenders typically have very few restrictions.
Oftentimes, it is a given that the money will be used to fuel the company’s growth, maintain the operations, and increase the company’s opportunities to earn more revenue.
You can maintain control and ownership of the business.
If business funding is provided by an equity investor, you are required to give up a significant percentage of the company in exchange.
Obviously, it would also mean you won’t get to call all the shots anymore.
You would need to take into account what the equity investor wants.
However, if you get funding help from financial institutions like banks, your only obligation will be making the payment on the time agreed upon.
Essentially, that’s pretty much the extent of your obligation.
That means you still have the freedom to control and run your business according to how you see fit.
You don’t need to provide any collateral.
Basically, there are two types of loans—secured and unsecured.
Working capital loans can be secured or unsecured.
However, in most cases, it is the latter.
Working loans that are unsecured are often extended to small businesses with a favorable credit history.
Common Types
Accounts Receivable Loan
One way to secure working capital is through loans that consider the company’s account receivables or sales order value.
This kind of loan is recommended for those who lack the funding to fulfill a sales contract or an order.
Accounts receivable loans are often only given to established businesses with a proven track of paying debts and obligations on schedule.
Short-Term Loan
Short-term loans typically come with a fixed interest rate and payment period.
Oftentimes, this secured credit facility’s repayment period is 12 months.
However, those with a favorable credit history and good relationship with the lender are sometimes provided with short-term loan even without any collateral.
Factoring or Advances
This type of loan is similar in some ways to an accounts receivable loan.
However, rather than relying mainly on confirmed orders or accounts receivables, the value of the loan is based on future credit card receipts.
This type of loan is usually extended to businesses that accept credit card payments.
While working capital loans are not ideal for all types of business needs, there might be a need for it at one point or another.
Fortunately, securing a working capital loan is relatively straightforward so it’s a lot easier to get your business back on track right on time. Visit www.capitalize.com.sg to find out how.
