Working capital loans are short-term loans that are used to finance daily business operations. While these loans are not intended for acquisition of long-term assets or investments, they can ease the handling of day-to-day expenses. Routine operational costs of a business may vary across businesses but in general, they are categorized into fixed and variable costs.
Fixed costs include expenses such as rent or employee wages while utilities such as electricity, water, production costs etc. are covered under variable costs. As you increase awareness about your product or service, you also require working capital to finance advertising and marketing campaigns for your small business. You may also use them towards inventory purchase.
With rising inflation rates and an unfriendly economy, many businesses are unable to generate the revenue required to fund their daily operations. As a result, business owners are often stressed out over stretching their funds to cover their business operations while funding other aspects of their business.
A working capital loan can help tide you over until your business gains a firm foothold and you are able to meet your day-to-day operational expenses. This can give you some much-needed breathing space during which you are able to continue business operations despite an inability to cover related operational expenses.
A significant cash infusion can make a huge difference to business performance. Gaining access to adequate capital can help you accept new orders that require increased production capacity or power up your marketing campaign to increase sales.
You could require a working capital loan under different circumstances. These include starting a new small business, during expansion or for restructuring your current business. Seasonal businesses also need funding to help them stay afloat during lean seasons.
For example, a ski equipment rental business may require external funding to keep them operational during the summer months.
Most lending institutions will require your company’s credit history, cash flow details and projected revenues to approve your loan application. Loan approvals can take as long as 2 to 3 months.
Merchant Cash Advance is the best, smartest and quickest option available out there. You get $10,000-$1million of unsecured funds, max 2X of your gross monthly revenue, within 3-7 days, This is a great way of gaining access to working capital loan for those businesses that have run into issues and require funds for daily operations.
Working capital loan can be typically repaid in one of two ways. One is by offering a small percentage of sales towards repayment. This percentage/amount is decided at the time of application between the lending institution and the applicant.
Another way of paying off the loan is to pay a small amount on a daily basis from Monday through to Friday. This method of repayment helps you build up a respectable credit history and reduces stress levels.