Money is the fuel that drives your business’s operations. Different businesses have different financial needs. According to the U.S. Small Business Administration (SBA), micro-sized businesses need about $3,000 to get up and running, whereas medium-sized businesses at least $5,000. Regardless, all businesses need money to finance their operations. Fortunately, there are several types of loans available from which you can choose, one of which is a working capital loan.
An Introduction to Working Capital Loans
What Is a Working Capital Loan?
A working capital loan is a type of short-term loan that’s used to cover operational expenses. Operational expenses, of course, are those associated with your business’s day-to-day activities. Your business probably has at least some operational expenses. Practically all businesses have operational expenses. A working capital loan is a form of debt financing that’s used to pay off these expenses.
Benefits of Working Capital Loans
With a working capital loan, you can obtain immediate financing to cover your business’s short-term operational expenses. They are offered by banks as well as some private financial institutions. These lenders realize that businesses of all shapes and sizes need financing to cover short-term operational expenses, so they offer working capital loans as a solution.
Most working capital loans are unsecured. As a result, you won’t need collateral to obtain them. You can apply for a working capital loan without placing any real property — as well as other assets — up for collateral.
You’ll retain full ownership of your business with a working capital loan. Equity financing is another way to raise capital, but it requires forfeiting partial ownership of your business. With a working capital loan, you won’t have to give up ownership of your business. It’s a traditional debt-based loan in which you retain full ownership of your business while incurring debt.
How to Obtain a Working Capital Loan
You can obtain a working capital loan from a bank or private financial institution. Start by creating a list of all lenders that offer working capital loans. You can then contact them to inquire about their requirements.
Keep in mind that because they are a form of debt-based financing, working capital loans require good credit to obtain. If you have bad credit or no credit, banks may reject your application. In this case, you may want to explore an alternative form of financing, such as equity financing.
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