Beginner’s Guide to Working Capital Loans

Beginner’s Guide to Working Capital Loans

Working capital loans represent the best solution if your business is having cash flow problems. With traditional financial institutions tightening their lending practises, they are demanding a large number of financial statements and paperwork.

Whilst this goal of responsible lending is regulating the banks, it is making it a lot harder for businesses to acquire working capital loans. So, if you find yourself stuck in the middle of this somewhat annoying situation, there are alternative and more flexible options on the table. You don’t need to to worry about how you are going to pay your staff and purchase the necessary inventory. This guide to working capital loans will help to highlight why they can be so useful.

Working capital loans might seem difficult and strange at first, but we’ll get you through them step by step to fully understand what they’re all about and how they can help your business.

How can working capital loans help?

You can obtain a working capital loan for your business to remodel it, buy inventory, hire new employees or finance operations required by your company.

You’ll be able to pay back business debts, wages, buy business supplies and deal with daily expenses. A working capital loan will enable you to focus on expanding your business and running it without having to deal with the stress and pressure posed by financial problems.

Working capital loans are calculated by putting on balance a company’s finances and efficiency, and by deducting liabilities that come from assets. It is a form of short-term funding that will allow you to pay every day’s expenses, even if the firm can’t cover the working capital costs.

Working capital loans come in the following forms:

  • Invoice discounting
  • Short-term loan
  • Bank overdraft
  • Credit card

Working capital borrowing addresses an urgent matter that requires a payment and is a short term solution that can be used as an immediate fix for a number of problems:

To cover salaries

Sometimes, even the best companies encounter difficulties. So, at some point, you may find yourself unable to cover the employees’ checks at the end of the month. You can access the funds and pay them back in a lump sum or in instalments.

salary payable through working capital loan

For marketing campaigns

A busy time can minimise your budget and make you realise that in order to get more profit, you will have first to be able to invest in a marketing campaign. Also, if you have to stock up the shelves or hire temporary staff, working capital loans will do the trick.

marketing campaign

For inventory

Not being able to deal with inventory demands is another problem when managing a small business. Without products to sell, your business will encounter problems, so again, working capital loans will get you out of difficulty.

Inventory for working capital loan

To hire employees

Hiring a new manager that will boost productivity and increase the cash flow of your business is a great addition to your team. Usually, it takes a while for the contribution to be turned into revenue. So, in the beginning, you can cover his/her salary with a loan.

To find out if working capital loans are the best choice for your business, consider that a new and growing business will encounter difficulties until it will reach a stable finance level. Having the possibility to invest in new machinery that will boost productivity, or even help you go through a quiet period, is essential for keeping your business afloat. So, don’t overlook these helpful loans.

Hire an employee

Advantages and Disadvantages of Working Capital Loans

There are many advantages to securing a working capital loan. The truth is, that many businesses use Working Capital Loans. Every business has expenses that need paying. If you cannot pay salaries or purchase inventory on time, a working capital loan can help you get that quick boost.

In saying so there are also drawbacks to acquiring a working capital loan. These loan types may come with higher interest rates and require collateral. Not every company necessarily needs a working capital loan. Depending on the business operations and cash flow of the business, a working capital loan may not be suitable. We do, however, find that almost all businesses can benefit from a loan. These loan types are somewhat vital to the survival of a business as they offer short term cash flow assistance.

Hopefully, this guide to working capital loans has helped to point out whether working capital loans are right for you. There are many smart ways to utilise working capital loans. Find out how.

For more information on business loans, commercial finance, debt consolidation, bad credit business loans and low-doc business loans talk to our experienced and understanding loan specialists to see how our business loans can support your business goals.

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