5 Things to Consider When Applying for a Working Capital Loan

Does your business need additional money to carry out its day-to-day operations? From payroll and rent to inventory and equipment, your business is bound to incur expenses. With a working capital loan, however, you can pay for these expenses so that your business’s operations remain uninterrupted. Working capital loans are a form of debt financing that’s designed specifically for a business’s everyday operations. Below are five important things to consider when applying for a working capital loan.

5 Things to Consider When Applying for a Working Capital Loan

#1) Secured vs Unsecured

Not all working capital loans are the same. Some of them are secured, whereas others are unsecured. Secured working capital loans are those that require collateral. Invoice financing, for example, is a type of secured working capital in which you use your business’s outstanding invoices as collateral.

#2) Term Length

You should consider the term length when applying for a working capital loan. Like with other business loans — as well as personal loans — working capital loans are available in different term lengths. Some of them have a term length of just one year, whereas others have a term length of two to five years.

#3) Amount

Of course, you can’t apply for a working capital loan without considering the amount. With a working capital loan, you’ll receive access to money that you can use to pay for your business’s operational expenses. You don’t want to borrow more than what your business needs, though. When applying for a working capital loan, choose a sufficient amount that will allow your business to pay for its operational expenses.

#4) Credit

Don’t forget to check your credit before applying for a working capital loan. Whether you apply for a working capital loan at a bank or an alternative lender, they may check your credit. Some financing companies will only check your business’s credit, whereas others may check both your business’s credit and your personal credit. By running credit reports, you can catch red flags early so that they don’t prevent you from getting a working capital loan.

#5) Interest Rate

Something else to consider when applying for a working capital loan is the interest rate. Working capital loans are a form of debt financing. Therefore, they typically have an interest rate. The interest rate is essentially the annual percentage-based fee for which you’ll be charged on the outstanding balance of a loan.

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