What is working capital? Simply put, working capital is money that a business has set aside to pay for the day to day operating costs. There are times when business is slow or an unexpected event has occurred that has depleted its financial resources, making it difficult to keep the doors open. A working capital loan will help provide you with the financial resources you need to keep the doors open and get back on your feet. There are a few things many people don’t know about working capital loans and how beneficial they can be when times get rough.
You Don’t Need Perfect Credit
Unlike personal loans, your credit isn’t an issue when you are applying for a working line of credit. Many lenders know that businesses can sometimes fall onto slower than normal times. This is why they encourage business owners to apply for a working capital loan. Even if they have imperfect credit, odds are they will still be approved to receive the funds their business needs to remain in operation.
Working Capital Loans Can Be Approved Faster
Applying for funding is somewhat different than applying for a traditional line of credit. Because business loans require fewer restrictions for approval, your lender may be able to approve them in just a few hours. This means that your loan can be approved and your funds available in as little as one business day. Your lender may be able to transfer your working capital directly into your account.
Working Capital Loan Applications Aren’t As Complicated
A working capital loan has fewer requirements than other types of loans. When applying for a business loan, you may only have to show six to nine months of active business history. This is beneficial for new businesses that may feel like they won’t be eligible for a loan because they haven’t been in business long enough. While a solid business history is important, certain lenders require documentation for a much shorter period of time.
More Ways to Make Payments
Lenders who offer working capital loans will normally offer multiple repayment options. Instead of paying large monthly payments, you may opt for smaller amounts that are taken directly out of the daily sales totals. Lenders also make it possible for you to make your payments automatically. This means no late payments and, in some cases, a fee or two may be waived. If you can make additional payments every month, you may be able to pay off your loan ahead of time. Be aware, however, that all lenders aren’t the same. You may not be able to pay ahead or pay your loan off before the scheduled final payment.
No Collateral Required
Not all small business loans require you to present collateral to cover the loan amount. If collateral isn’t necessary, it’s important that you read the entire loan agreement before you sign your name. If you don’t understand something, now is the time to ask questions. If you own a small business and are finding yourself short on working capital, look for a lender that is easy to work with. Understanding how working capital loans work will help you find the right loan for your needs, from the right lender. Even though you think you may not be eligible, remember that it is easier to get a working capital loan even if you have only been in business for a short period of time.