Working capital loans allow you to tap into the capital of your business. This type of loan is much different than your typical business loan. You should be clear on how they work and the details of the loan before you consider getting one.

How They Work

A working capital loan allows you to borrow the money you have in your business that isn’t readily available. This is money tied up in your assets or money owed to you through unpaid invoices minus your liabilities. A loan allows you to use this money now when you really need it. The loan is short term, meaning you will pay it back rather quickly. Ideally, you will use the money to help get your business back on track, so paying it back shouldn’t be too difficult.

Important Points

A working capital loan allows you a lot of freedom that you don’t get with a traditional business loan. When you apply for the loan, you don’t have to declare the purpose for the loan. It is assumed you will put it back in your business. You can use the money in any way you want, but generally you should still have a purpose in mind.

You should know that as a short term loan, the interest is often higher and the payments are also larger. It is important that you plan for the payback of the loan. Also, being short term, this loan isn’t designed to be used for investing in your business or buying large assets. It generally is designed to be used to pay for daily operation expenses, such as paying employee wages or buying supplies. It can also be used for unexpected expenses, like repairing broken equipment.

You may […]