Businesses — big or small — require funding at several phases in their operations. Whether it is purchasing equipment, starting a new venture, expanding operations, or recovering from losses, entrepreneurs have to figure out a way to make optimal use of their resources. Just as good cash flow can keep a business afloat, poor cash flow can sink it. In fact, poor cash flow is the biggest reason why one in every four businesses doesn’t make it past the first year – and why more than half don’t survive past the fifth.
Many companies don’t have a stable or predictable revenue throughout the year. Manufacturing companies, for instance, have cyclical sales that resonate with the needs of the retailers. Most retailers sell more products during the holiday season than at any other time of the year. Businesses with this type of seasonality often require a working capital loan to pay operating expenses and wages during the quiet period of the year.
Working capital is a sum of money borrowed from a financial institution and used by a business to ensure smooth sailing of operations and payment of bills. As is the case with most loans, it is a form of debt that the borrower — in this case, the company — needs to repay as per the terms and conditions mentioned in the loan agreement.
These loans are an excellent way for businesses to become more focused on their growth and generate capital. Typically, working capital loans are not used for buying long-term assets, but for covering wages, accounts payable and other operations. The loan is applicable for SMEs for augmenting their working capital needs and meeting their daily expenditure. The majority of working capital loans are unsecured loans. However, some with high risks require some form of guarantee.
All in all, it can be said that working capital loans have a significant impact on business expansion!
Advantages of working capital loans.
- Business Growth
One of the most essential needs for any business apart from manpower and technology is finance. This key aspect ensures that all other needs are met adequately. Without it, it is hard to keep up with the advancements of the world. Hence, the required cash flow can be highly essential for a business to grow and expand. Business owners can arrange more facilities and purchase the necessary equipment to speed up the business processes. In addition, business owners also have the freedom to use the money as per their preferences and utilise it as per their business needs, thus maintaining a healthy working capital balance.
- Eliminating obstacles
At modern NBFCs like Clix Capital, working capital loans for small businesses are designed to eliminate whatever is restricting your cash flow or spending power. This could either be old equipment or outstanding debt. It could also be a poor credit history. Eliminating such obstacles might increase the revenue of your business right away or over the next few months. Either way, the structure of terms can be adjusted to make your largest payments when the revenue has seen significant improvements.
- Sole ownership
To cover the financial deficits that you may be experiencing, you could turn to an investor. However, it is likely that in exchange for the funds, you will lose ownership over a particular percentage of your business. This means you will also be relinquishing some of your ability to make decisions for your business. On the other hand, if you turn to a financial institution for help, your only obligation is to make timely payments. Securing short term funds in the form of working capital loan guarantees that you retain full control over your business.
Need Working Capital?
We’re right here. Apply now