Working Capital Loans: The Guide to Getting One
In case you didn’t know, working capital loans are money you can borrow from a credit union, a bank or an alternative lender to the end of paying for bills and operations in your company when it’s in dire straits.
Working capital loans are especially helpful for start-up businesses that cannot cover the expenses of day-to-day operations, therefore are already with a foot in the grave. Now that we’ve seen what a working capital loan is, let’s see how you can get it.
Step-by-step Instructions to Getting Working Capital Loans
Prepare a balance sheet
A balance sheet is a paper that contains financial information about your company. Revenue, invoices, insurances, and assets, among others, will go on this sheet. This will determine how much money you need to borrow. If you don’t know how to do it, an accountant can do it for you. He’ll know everything that must be specified in it, so he’ll get the job done a lot sooner than you would.
Assess the type of loan you need
Working capital loans come in various shapes and sizes. The commonest types are: invoice financing, a line of credit and short-term loan. Let’s explain each of them briefly, so you know which one would work best in your case. Invoice financing refers to selling the invoices that haven’t been paid by your customers to a 3rd party financier. In return, you will get 80-90% of the value of those invoices as cash. It’s one of the handiest methods of getting some much-needed money quickly.
A line of credit is a credit card that gives you access to a certain amount of capital. The greatest thing about this is that you actually pay interest only on the capital you withdraw, not all of it. For instance, you need $1000 and the borrowing limit on your line of credit is $5000. You’ll pay interest only on the $1k, not the whole 5.
A short-term loan is a smaller sum of money you can borrow for a couple of months or a maximum of 2 years. It’s the most expensive of all three types because it has the highest interest rate. These working capital loans differ, so make sure you get some understanding of what strings are attached to each of them. Your accountant or a broker can shed some light on this topic.
Start looking for potential lenders
Some lenders are more generous, some other ones not as much. Each lender has his own policy, so rates and terms will vary accordingly. But this gives you the upper hand since you’ll be able to make a truly good decision. Credit unions and banks should be your first go-to sources, but only if your credit score is untouched. If it’s low, your chances of getting the loan are decreased dramatically. It’s possible for you to get working capital loans in spite of low credit.
There are specialised lenders on the Internet that cater specifically to businessmen whose credit scores are a bit dusty. You should prepare yourself for some cosmic interest rates, though.
No two loans, regardless of what type they are, are made equal. Don’t get the first loan you find, because you’ll live to regret that decision in the long run. There are a hundred of online calculators you can use. You don’t have to do it by hand; that would be time-consuming. Online calculators do the calculus automatically. You just need to input the numbers and you’ll get the comparison rate in a matter of minutes.
Determine the true price of the loan
More often than not, businessmen believe everything lenders say. If you don’t want to be the victim of a couple of hidden fees that will inflate the real price of the loan, take some time to calculate every sum, no matter how tiny it is.
Look at the interest rate, the APR, the additional fees (if any) and the cost of the currency you’re borrowing money in. Doing all this will help you reveal whether or not the loan is worth it.
Working capital loans can provide some very quick funding, especially when your company has just been started. Getting one is a fairly easy thing to do once you know how to do it.
Business Loans Australia can give you some professional advice on the subject of working capital loans. Moreover, if you can’t seem to find a trustworthy lender, this company can step up and help you out. One more thing: before you get a working capital loan, familiarise yourself with the dangers attached to it. Like any other type of loan, it’s not utterly devoid of certain pitfalls. You’ll be fine with just a tad of research on the Internet or even at the bank.