Different Types of Business Working Capital Loans

What Are Business Working Capital Loans?

Business working capital loans provides funds needed to cover business expenses in order to ensure the business is up and running these quick loans keep business in a good shape. 

There are a few types of business working capital, they include:

1. Credit Line or Bank Overdraft 

This type of credit is suitable for specific businesses, you only pay interest on the amount you withdraw.

Bank rates are usually at a percent or two. You must ensure that you don’t spend more than your approved limit.  Once you do not exceed your credit limit, this will be a valuable source of funding for you.

2. Short-Term Loans

Short-term loans come with set payment periods and interest rates, which is not the same with lines of credit.

 A collateral is not required to secure a short-term loan so ask your lender about their loan requirements. Repayment of loans is usually within a year, some lenders may extend the period to 18 months.

3. Equity Funding From Investors 

These loans emanates from personal resources, such as family members or friends who want to invest in your business. This also enables you to secure a business working capital loan as it helps to build your business credit history.

4. Accounts Receivable Loans

There is the accounts receivable loan option. These are loans that accept accounts receivable or the sales order value of your business. This is great if you need the funds to fulfill a large order or sales contract. The order can prove that your business will be able to repay the funds – you just need them up front to be able to fill the order.

One caveat is that lenders tend to only offer these loans to companies that have a proven track record or a solid reputation already. If your business is brand-new, you likely won’t qualify for this kind of loan.

5. Advances 

This is similar to the accounts receivable loans. Your credit history would be carefully examined, so ensure its in a good state before applying for this kind of loan. If your business has a record of repaying debts as at when due and also accepts credit card, you may be eligible for this loan.