Friday, April 14, 2017

What Are Business Working Capital Loans And Why Are They Important?

By Nancy Smith

Working capital loans (WCLs) are short-term loans that are used to finance daily venture operations. While these loans are not intended for acquisition of long-term assets or investments, they can ease the handling of day-to-day expenditure. Routine venture operational costs may vary across businesses but in general, they are categorized into fixed and variable costs. Business Working Capital Loans are integral to the survival of any venture.

Fixed costs comprises of such expenses as rent/employee wages while variable costs include utilities (production costs, electricity, water, etc.). As you increase awareness about your product or service, you also require working capital for advertising and marketing campaigns. You may also use them towards inventory purchase.

Normally, these credit advances require at least three months for appraising property, underwriting, reviewing securing funds and financials. In addition to that, getting an approval from SBA is very difficult in today's environment. However, if credit and time are not an issue, a small venture should explore their options on this choice first.

A WCL can help tide you over until your venture gains a firm foothold and you are able to meet your day-to-day operational expenses. This can offer you the much-needed breathing space necessary to continue venture operations despite an inability to cover related operational expenses. A significant cash infusion can make a huge difference to venture performance. Gaining access to sufficient capital can assist you increase production by accepting new orders or power up your marketing campaign to increase sales.

Now that we have clearly identified the vital role that W/C plays in the health and economic durability and viability of a company, what then are some of the benefits and drawbacks commonly associated with WCLs?

There are no upfront fees associated with these loans, and no need to switch credit card processors or buy equipment. Unlike merchant cash advances, it is a loan that can build positive credit history. Maximum loan amounts up to $500,000 are available. Getting preapproved for this type of venture loan is can take place in less than 48 hours with funding received in 7 - 10 days. This type of financing is available in all the 50 states.

You can also produce revenue by undertaking the sale of shares in your venture to interested investors. Some businesses also offer a percentage of ownership to potential investors and use the cash infusion to fund their venture operations. While this is a good way of generating revenue, you are forced to share ownership (and profits) with other investors.

There are several online lending companies that offer to approve loans within a few days or even within a few hours. Before getting tempted to sign on with them (the terms are often attractive and extra costs may be cleverly hidden in the clauses), make sure you understand their terms clearly. Check out on the aforementioned factors.

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