Even if you have an incredibly successful business, you may occasionally find that you have difficulty paying for small expenses that come with running your business. These may include payroll, repair costs or the cost of inventory. The money needed for these kinds of expenses is called your working capital. When a business does not have enough working capital, it will often struggle to function properly. It is worth considering working capital loans if you ever find your business in this situation. There are many advantages and disadvantages to these kinds of loans and it is important to know about both.

Loans that are specifically designed for working capital are great for keeping you prepared for any small hiccups you may have financially. With these kinds of loans, you can breathe a bit easier knowing you can handle any surprise expenses. Additionally, because these loans are designed for short-term concerns, it does not require long-term repayment and lenders do not have many restrictions on how the money is used so long as it is for small expenses for your business. Lenders also understand a working capital loans are for immediate expenses. They are aware that businesses need this loan as quickly as possible and often the money is accessible to you approximately a week after you are approved.

Even though there are many advantages to financing your working capital with a loan, there are several disadvantages as well. As with any loan, it must be repaid. This may seem obvious, but it is worth noting that even if your business fails all lenders will still expect you to make your payments.  Furthermore, repeatedly taking out small loans can negatively affect your credit rating. Especially if you are taking out large amounts, not repaying or repaying slowly. Working capital loans may also come with higher interest rates if they are unsecured. This will cause your repayments to be higher and harder to afford.

Although the short term of the loan can be an advantage to the focus of your business, it can also be detrimental if used incorrectly. These loans are intended to fix problems in the short-term, this is not recommended for projects that require large investments or to fund business ventures. However, used as intended these loans are significantly helpful for daily support for businesses. Working capital is necessary no matter what your business model or products or services. Knowing your goals and options is important for making the best decisions for your business and its future.