Is A Capital Loan Right For Your Business?

6 Crucial Things To Know About Working Capital Loans

Working capital loans provide short-term financing to help cover costs when business cash flow is low. Before applying, it's important to understand six key aspects.

1. Is Your Business Cyclical?

These loans are especially helpful for cyclical businesses that experience seasonal dips in revenue. The funds can pay for operating expenses and wages so you don't lose valuable employees when money is tight.

Accurately forecasting your cash flow cycles is key to knowing when a working capital loan may help bridge the gap until revenue rebounds.

2. Where Can You Get Funding?

Banks often have strict requirements, making approval challenging. Online alternative lenders tend to offer a faster, more accessible option for most businesses.

Their online platforms and processes make it easier to apply and get approved so you can quickly access funds.

3. How Do You Receive the Money?

Working capital loans provide lump-sum funding deposits into your business bank account. They are also "on-demand" loans, meaning the lender can request repayment at any time.

4. How Are The Loans Secured?

These loans require collateral, usually in the form of business assets. Interest rates and terms depend on repayment ability based on assets and the type of collateral securing the loan.

Real estate or equipment may allow better rates and longer repayment than other assets.

5. Is Your Personal Credit At Risk?

Some lenders may secure the loan with both business assets and your personal credit. That means missed payments could negatively impact your personal credit score.

6. How Is Your Cash Flow?

Healthy cash flow is vital for any business. Strategies like ecommerce can help increase funds. But working capital loans can provide necessary cash when revenue drops unexpectedly.

Frequently Asked Questions

What are working capital loans?

Working capital loans provide short-term financing to businesses to cover costs when cash flow is low. The funds help pay operating expenses and wages during seasonal dips in revenue.

How are working capital loans repaid?

These are usually "on-demand" loans, meaning the lender can request full repayment at any time. You repay the lump sum you received plus interest and fees when your cash flow rebounds.

Where can I get a working capital loan?

Online alternative lenders tend to offer faster approvals and easier qualification than traditional banks. Their online platforms simplify the application process.

What collateral or security is required?

Working capital loans require you to secure the funding with business assets like real estate, equipment, or accounts receivable. Your personal credit may also back the loan.