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Working capital loans are short term loans that can be 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 generally, they can be categorized into fixed and variable costs.
Fixed costs include expenses such as rent or employee wages while utilities (electricity, water, production costs etc) are covered under variable costs. While you increase awareness about your products or services, additionally you require working-capital for advertising and marketing campaigns. You may also use them towards inventory purchase.
With rising inflation rates and an unfriendly economy, many businesses are not able to generate the revenue required to fund their daily operations. For this reason, business people tend to be stressed out over stretching their funds to cover their business operations while funding other facets of their business.
Most lending institutions will demand your company’s credit history, cash flow details and projected revenues to approve your loan application. Loan approvals may take as long as 2 to 3 months.
You can gain access to several types of loans, determined by your profitability levels and credit history.
Debt Financing – This is a good way of gaining access to working capital for all those businesses which have run into debt and require funds for daily operations. Alternatively, you could want to be aware that debt financing institutions often have stringent criteria for loan approval and the process tends to be long-drawn and complicated.
Equity Financing – You can also generate revenue by selling shares within your company to interested investors. Some businesses offer a portion of ownership to potential investors and use the cash infusion to fund their business operations.
Even though this is the best way of generating revenue, you are forced to discuss ownership (and profits) with other investors.
Special Government Subsidies – Certain businesses experience the patronage of government subsidies which provide them loans at attractive rates. Businesses which are perceived as good for the country’s economy get preference for approval. One example is export businesses can often get approved for government subsidies.
Working capital loans 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 also the applicant.
A different way of paying off the loan is to pay a small business cash advances 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.
You can find several online lending companies that offer to approve loans within a few days and even in a few hours. Before getting tempted to sign on with them (the terms are often attractive and extra costs may be cleverly hidden in the clauses), ensure you understand their terms clearly.
