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Working Capital Loans...
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Information on Working Capital Loans
The working capital loan is a short term loan known to help tide over a
financial crunch which a business organization faces. A working capital
loan can be used to help steady a business that is experiencing financial
trouble. Working capital loans are ideal for the sustaining of a business. It
helps stabilize a business and pulls it out of its shaky confines. The
working capital loan can pump in the cash flow and fund the daily
operations of your business.
Companies which are growing fast and furious are more prone to capital
shortage and are in need of working capital despite reflecting huge amount
of profits on paper. This is because once these businesses rake in money,
they need to invest more money on continuous improvements and
innovations for their current set of products and also diversify into other
product lines. These companies also have to pay for infrastructure,
advertising campaigns, marketing promotions, new machinery and also
meet expenses of day to day nature like rent, bills and employee salaries.
To set the wheels of the business running, one cannot escape the fact that
the working capital is very important for the progress of the business.
When the time arises, a business can rely on a working capital loan to get
the cash they need.
There are a few Variations on Working Capital Loans
There are many different types of working capital loans. It is ironical that
different banks use different terms to describe the same type of loan. Here
are some common types of working capital loans.
1. Line of Credit/ Overdraft: You can avail of an overdraft facility to draw
funds beyond the available limit of your bank account. The maximum
amount you can overdraw is your line of credit. The equation you share
with your banker and his assessment of your credit worthiness can
determine the term and the amount of money you can withdraw. The
interest rate is usually charged 1-2 percent over the bank’s prime rate.
2. Short-term loans: They are almost synonymous with working capital
loans. Contrary to an overdraft, a short term loan has a fixed payment
period which is usually for up to a year. The interest rate is also usually
fixed on this form of working capital loan. Short terms loans are generally
secured wherein you are granted the finance against collateral. However if
you enjoy a good reputation in the market, have a good credit history or
share a pleasant relationship with the bank, you may be offered a short-
term loan without a security.
3. Factoring/advances: These are loans based on confirmed sales orders
or account receivables. Accounts receivable implies the amount of money
that you have billed the customer but have not received the payment. If
your customers are reliable and reputable, the lending company will be
able to raise the working capital for you. If your business accepts credit
card payments, then you can sell the future receipts to raise cash.
4. Equity: These funds can come from your own personal resources like
the home equity loan, a relative, a friend or an angel investor (third party
investor with business experience relevant to your company)
5. Trade creditor: He is a creditor who may be willing to extend terms to
meet a big order.
The working capital loan is a short term loan known to help tide over a
financial crunch which a business organization faces. A working capital
loan can be used to help steady a business that is experiencing financial
trouble. Working capital loans are ideal for the sustaining of a business. It
helps stabilize a business and pulls it out of its shaky confines. The
working capital loan can pump in the cash flow and fund the daily
operations of your business.
Companies which are growing fast and furious are more prone to capital
shortage and are in need of working capital despite reflecting huge amount
of profits on paper. This is because once these businesses rake in money,
they need to invest more money on continuous improvements and
innovations for their current set of products and also diversify into other
product lines. These companies also have to pay for infrastructure,
advertising campaigns, marketing promotions, new machinery and also
meet expenses of day to day nature like rent, bills and employee salaries.
To set the wheels of the business running, one cannot escape the fact that
the working capital is very important for the progress of the business.
When the time arises, a business can rely on a working capital loan to get
the cash they need.
There are a few Variations on Working Capital Loans
There are many different types of working capital loans. It is ironical that
different banks use different terms to describe the same type of loan. Here
are some common types of working capital loans.
1. Line of Credit/ Overdraft: You can avail of an overdraft facility to draw
funds beyond the available limit of your bank account. The maximum
amount you can overdraw is your line of credit. The equation you share
with your banker and his assessment of your credit worthiness can
determine the term and the amount of money you can withdraw. The
interest rate is usually charged 1-2 percent over the bank’s prime rate.
2. Short-term loans: They are almost synonymous with working capital
loans. Contrary to an overdraft, a short term loan has a fixed payment
period which is usually for up to a year. The interest rate is also usually
fixed on this form of working capital loan. Short terms loans are generally
secured wherein you are granted the finance against collateral. However if
you enjoy a good reputation in the market, have a good credit history or
share a pleasant relationship with the bank, you may be offered a short-
term loan without a security.
3. Factoring/advances: These are loans based on confirmed sales orders
or account receivables. Accounts receivable implies the amount of money
that you have billed the customer but have not received the payment. If
your customers are reliable and reputable, the lending company will be
able to raise the working capital for you. If your business accepts credit
card payments, then you can sell the future receipts to raise cash.
4. Equity: These funds can come from your own personal resources like
the home equity loan, a relative, a friend or an angel investor (third party
investor with business experience relevant to your company)
5. Trade creditor: He is a creditor who may be willing to extend terms to
meet a big order.