Advantages of the working capital loan
Working capital loans are based on existing orders or pending invoices. As a result, you can’t borrow more than the amount you know you won’t be able to repay quickly, eliminating the worries associated with a small business loan.
Well, you should always avoid taking out loans for as long as possible, but this type of loan has its advantages:
1) No need for warranty
If you have good credit, you may be eligible for unsecured working capital loans. It is not necessary to put your inventory, your business or anything important to secure the loan. However, canceling the loan is crucial as the banks will come after you.
2) Speed and flexibility
One of the biggest benefits of working capital loans in India is that eligible businesses can obtain short-term loans including inventory loans, active account lines of credit or bank lines of credit in a shorter period of time. . These loans are generally flexible with variable repayment terms and interest rates, helping businesses with seasonal fluctuations smooth out their cash flow.
3) Spend money at your discretion
In general, loans for working capital have few or no restrictions. The only thing the lender hopes is that you are using the money to increase income or maintain day-to-day operations.
Types of loans for working capital
When looking for information on how to obtain loans for working capital, you should take a look at their types and choose the one that best suits your needs.
1) commercial lender
The commercial lender working capital loan is offered by a current or prospective provider. You will verify the credit history of your business before obtaining this type of loan.
2) Bank overdraft instrument
Your company’s relationship with the lender decides the interest rate and maximum line of credit you can receive. A great advantage of an overdraft bank loan is that you only have to pay the corresponding interest on the overdraft amount. However, rates are generally set above the bank’s main rate.
3) Credit to debit
Accounts receivable are based on the value of a company’s confirmed sales order. It is perfect for a business that needs financing to complete a sales order. However, you must have a good reputation and good credit history to obtain this type of working capital loan.
4) Factoring or advance payments
Factoring out the working capital loan works in a similar way to credit claims, the only difference is that the value of the loan is based on future credit card receipts. This type of loan is perfect for companies that accept credit card payments.
5) Short-term loan
A short-term loan has a fixed interest rate for a maximum duration of 12 months. The company’s good credit history and relationship with the lender may allow them to obtain a short-term loan without guaranteeing any collateral.
6) Equity financing by investors or personal resources
This type of loan is perfect for a new business that does not have a good credit history. Capital financing is generally obtained from personal resources.