working capital loan

Working Capital Loan: Importance & Advantages For Small/Medium-Sized Businesses

A working capital loan is not used to buy any long-term assets or investments, it is taken to smoothen the business’s operational needs. The operational needs can be of any type ranging from payroll to debt settlements. Companies that rely on seasonal sales require working capital loans to stay afloat during the off-season. When business activity is reduced companies need additional cash to maintain their business and meet their day-to-day needs, this deficiency is dealt with by taking a working capital loan. Since it is tied to a business owner's personal credit, timely repayment is essential. 

Importance Of Working Capital Loan

A small/medium-sized business that has just established itself might not have the consumer base it requires all the time. It takes years for businesses to ensure that they get sales all around the year. This does not mean that the business has to shut down during the off-season, many businesses take a working capital loan and pay it back in the busy season. 

Advantages Of Working Capital Loan

Everyone can utilize some extra cash to improve the quality of their day-to-day activities. It's the same with a business taking a working capital loan. These are some advantages of working capital loans for small/medium-sized businesses. 

  • Collateral 

Depending on the lender, you can get the working capital loan in a secured or unsecured way. Each lender has its own collateral requirements and you can choose the lender that is most flexible with their collateral options. If you have good credit history and score, you can easily secure an unsecured working capital loan to support your small/medium-sized business. 

  • Short Term 

The working capital repayment term is usually short, it can range from 6 months to 24 months allowing a small/medium-sized business to function effectively during off-seasons and pay the loan back during the busy season. The tenure of the loan can be discussed with your lender according to your business needs. The new business that does not require heavy inventory or equipment can get this loan as seed capital to start their business. 

  • Ease of Management 

A working capital loan eases the management of your financial requirements and helps in overcoming any short-term financial challenges. You can take a working capital loan to quickly pay off your creditors and improve credibility in the market. This way, you can gain a good reputation while maintaining a good credit score. It also helps in securing larger loans in the future. 

  • Helps In Tough Times

As mentioned above, every day is different when you are running a small/mediums sized business. Most businesses that have seasonal turnover make profits only during a particular season. This can result in a slump in your annual revenues if you do not manage your operational expenses effectively. The business can overcome fluctuations caused by a seasonal turnover by taking a working capital loan

  • Easy Repayment 

This type of loan is matched with your business cashflows and profit earning period and an efficient repayment schedule is made. The lenders design the repayment plan by keeping your business’s financial capability in mind.