Working Capital Loans
Working capital is typically used as a financial metric to determine the financial health of a business by evaluating current assets less current liabilities. Current assets are items that can quickly be converted to cash, while current liabilities are short-term obligations due within one year.
Access to working capital is crucial for all businesses to meet their continued operational needs, whether they utilize a business loan or not. As a business grows, cash flow must expand with it in order to be successful. Managing inventories, debt recovery, and payroll are just three examples of how working capital can help your business. Unexpected events do arise, and these events can create a financial burden and dilute the value of your working capital, requiring months of recovery time.
Working capital loans provide a sense of financial security when it comes to making healthy business decisions. These types of loans are designed to finance the everyday operations within your business.
Working Capital Loan Uses
A working capital loan can be utilized in a multitude of ways. These types of loans are a form of “all- purpose borrowing,” meaning you can apply these loans to nearly any aspects of your business to further your growth wherever it is needed. Common uses for these loans include, but are not limited to:
Cash Flow Loans
A working capital loan can be used to secure cash flow for your business. If your business is experiencing a declining working capital ratio over a long-term period, this may be a good choice for your business. These loans are very flexible; however, it may be hard to obtain an unsecured business loan through a traditional lending institution if you don’t have good personal credit.
Loan processes vary between lending institutions, but the standard procedure usually involves determining the loan amount, negotiating assets, and agreeing upon loan repayment terms. The advantage to this type of loan is that your business will always be prepared to handle any financial difficulties that arise and the funds can be used how you need it most.
Working capital loans can be used as a debt consolidation loan for a business. Between purchasing orders and keeping up payroll, a business may end up buried in a pile of debt and interest rates. Consolidating these debts with a working capital loan will allow a business to pay off these debts and convert them into one organized loan with one - generally lower and manageable- interest rate.
Working capital loans can also be used to cover the cost of marketing expenses. As a business grows, so should the marketing efforts. Although marketing is essential to the growth and well-being of a business, marketing expenses can be difficult to evaluate and cause quite a dent in a business’s income. A working capital loan can be utilized to purchase marketing expansion without worrying about breaking the bank for a necessary service