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How to Secure a Working Capital Loan

Working capital refers to the cash existing for the daily costs of running a company and is a measure of both a business’ competence and short-term monetary performance. It is important to ensure cash flow to help you cover inventory, marketing operations, payroll, and any other financial costs that occur within day-to-day activities.

As a small business, maintaining enough operating capital should be your top priority so as to keep on growing. Net Working Capital is the result of your current assets minus your current liabilities. For small businesses, obtaining a working capital loan is a major challenging especially from traditional lenders because they often ask for extensive collateral or other guarantees that you will repay the money. Additionally, more and more traditional lenders are in the habit of asking for substantial personal guarantees like the business owner’s house or other collateral of high value.

A working capital loan will allow you to carry on your day to day operations in spite of its inability to cover ongoing operating expenses. This loan gives you the ample time you need to generate income based on available funds and resources.

Types of working capital loans available for your business

Below are most common working capital loan options for you.

  • Accounts receivable loans: One way to gain access to working capital is by applying for loans that are based on the value of confirmed sales order your company. However, your application may be rejected if you don’t have a record for clearing debts.
  • Factoring or advances: The value of such a loan depends on future credit card receipts. This kind of working capital loan is a perfect fit for businesses that process credit card payments.
  • Trade creditor: A supplier may offer you a trade credit facility that is if you have a history of large orders. The trade creditor will first have a careful check of your business’ credit history.
  • Credit line or Bank overdraft facility: If you borrow from a credit line, you will only pay for the interest valid to the amount of cash in debt – typically 1 to 2% over a bank’s prime rate.
  • Short-term loans: They are offered by lenders e.g. First American Merchant. These loans carry a payment period and fixed interest rates. This type of small loan is secured, and you eligible to a short-term debt devoid of collateral if your credit history with the bank works to your favor.

Now you know where to begin when looking to secure a working capital loan for your small business, pick the ideal lender for you in line with the above guidelines.