Working Capital Loans: Understanding the Basics

While every business is unique, almost all of them are started with the intent to grow.

There are many different ways an organization can expand. Offering new services or promoting existing ones to a new market can help an established operation increase retention and revenue.

Since growing a business can be such a complex endeavor, and since growth can come in many forms, working capital loans are a great way to finance these types of changes. This type of versatile financing can be used for a variety of reasons, all of which pertain to the expansion of an organization.

What are Working Capital Loans Used for?

Working capital loans are a flexible financing option which can provide funds for various causes. This can include everything from buying equipment to hiring employees. Whether a company is looking to start a new contract, develop a new product, expand their inventory, or even boost their promotional efforts, this type of growth strategy can be fueled by working capital loans.

No matter the size of a business, working capital loans are relatively easy to acquire provided owners can demonstrate a good business plan and proof of financial responsibility to lenders. While working capital loans can be used for many types of expenses, there are some purchases which these loans will not cover.

What Purchases are Not Eligible?

Every business needs to make smaller purchases at certain points. Whether it’s a freight carrier paying for fuel or an accounting firm buying a new type of anti-virus software, these small expenses don’t necessarily help to facilitate business growth. For this reason, a working capital loan is not designed for use on these everyday expenses.

According to Forbes, nearly 40% of professional loan seekers are looking for working capital. This crucial aspect of businesses can be hard to acquire without help, which makes working capital loans a great asset for small startups and established companies alike.

How to Get a Working Capital Loan

Getting working capital loans or working capital lines of credit requires a person to present certain things to the lending institution. Not only must a person show they are able to repay the loan, but they must also show what the resources will be used for.

Personal income tax returns are required, as is a good credit score for both a person and their business. A business plan is necessary to show how the resources will be used. Finally, certain collateral may be required depending on the loan amount.