Things you may not be aware of working capital loans
Working capital refers to the business capital which is used by companies in their everyday operations. A working capital is obtained when the current liabilities are subtracted from current assets of a company. This article covers crucial things you may not know about working capital loans.
1. Working capital loans can keep any business alive
A short term working capital is essential for businesses no matter whatever industry you are in. For instance, retailers require working capital during holiday months in order to pay for seasonal inventory. A working capital may also be needed for updating outdated products, office space, recovering from natural disaster or keeping up with the competition. Businesses often hit a rocky patch when they don’t have a working capital to prosper. Working capitals offer businesses the capital needed to keep the business running. These loans can keep businesses from shutting down and to keep them on their feet all the time.
2. Cash inflow is quick in case of working capital loans
Traditional banks may take weeks or even months in several cases to release finds. Working capital loans are processed quickly when you opt for procuring the loan from alternative lenders. Several banks these days process the entire amount quickly. The process of approval is quite efficient. It just requires a business day for the funding to take place from the day of approval of the loan.
3. The easiest application businesses can ever get
You must be of the opinion that loan application process is full of hassles. However, the truth is that it is quite simple to apply for a working capital loan. The questions asked during the application process include the owner name, merchant type, money being requested, percent of ownership, and contact details of the business.
4. Collateral not asked by non-banking institutions
Collateral refers to a valuable asset that the borrower needs to promise the financial institution while applying for working capital loans. In this manner, the borrowing organization promises to repay back the loan amount. If you do not repay the loan, the possessions are put on the line. Collateral is not required when applying for a loan from non-banking institutions. The bank instead examines the expected and previous sales. The monthly cash flow is considered important in comparison to collateral.
5. You can use the money the manner in which you would want to use
Traditional loans taken from banks impose heavy restrictions. These can be used to pay bills, invoices and taxes. Working capital loans can be used to pay sales tax bills and unexpected payroll as well. This amount can as well be utilized for launching a marketing campaign and to seize new opportunities pertaining to businesses. You can even update your office with the use of working capital.
6. The term of working capital loans are short
As working capital loans are used for getting quick capital, these also come with a short tenure of 6 to 18 months. In this manner you wouldn’t be burdened with long term obligations and contracts. You wouldn’t be stuck with long term loan payments. The qualification of a loan becomes easier when you apply for loans of shorter terms. This also implies that you will have to pay less interest on the amount borrowed.
7. Credit score isn’t offered top priority
It is great to have a good credit rating. Having a good credit rating works out in your favour while applying for a working capital loan. You don’t have to fret if there is a flaw in your credit score. The qualification of a working capital loan is entirely dependent on your cash flow.