Business capital is the money your business needs in order to start-up or expand. There are basically two primary sources of business capital, a business can draw; equity and debt. Equity can come from various forms such as a business loan, stock ownership, investment funds, bonds, personal property and the like. The amount of equity a business possesses generally depends on its market value at the time of the sale.

Small Business Working Capital Loans (What They Are & Why They Help)

Long-term working capital loans for small business owners are offered primarily through banks. Banks typically provide short-term loans at relatively high interest rates with repayment terms ranging between one to fifteen years depending on the term and interest rate. Interest rates are usually tied to the prime rate.

Businesses frequently apply for working capital loans because their everyday operations require funds to pay for supplies, raw materials, machinery and other expenses. Long-term debts that do not earn an income are perfect for obtaining business capital loans. Traditional loan options such as a home equity loan or a personal loan may not be appropriate for all situations. These conventional lending sources come with very high interest rates and term periods ranging from one to thirty years Business capital loans.

Many commercial borrowers are turning to non-traditional sources of working capital loans to help them finance their business. Some of these potential lenders have lower interest rates and shorter repayment terms. Most non-bank funding sources require collateral to secure financing from them. Commonly used collateral is real estate assets, inventory, personal property, accounts receivables and accounts payable. There are some business loans that do not require collateral to obtain approval.

Business owners should carefully consider the advantages and disadvantages of obtaining a nonrecourse loan against their collateral. Because they are taking a risk by agreeing to receive a loan amount that is higher than they currently owe on their property, they should be certain that the amount they are borrowing will be worth their current loss value. The best way to determine this is to calculate the amount they would lose if they were to sell their assets and unable to repay the new loan. If the amount is less than their current market value, the lender may agree to a repayment schedule that is agreeable to both parties. They can also offer refinancing at a later time if the owner continues to make timely payments.

Private small businesses that need extra funds to pay for daily operations often prefer working capital loans instead of a traditional loan. This is usually due to the fact that there is less risk involved. Since private companies rarely file bankruptcy, their ability to recover any outstanding debts is likely very good. A lender will be eager to finance small businesses because their chances of recovering a portion of the money owed are very good. Also, the repayment terms are often much more flexible and affordable than those for larger businesses.

Small business owners who are interested in using working capital loans should approach the option with caution. Cash advances are short-term loans that must be paid back within a relatively short period of time. The amount borrowed will be substantially smaller than the amount used to make the purchase of the equipment or services. Therefore, if a business is experiencing tough times and needs additional cash to survive, using cash advances may not be the best solution. On the other hand, if a borrower intends to repay the debt within a very short period of time, then this form of financing could be very helpful.

Working capital loans are offered by many traditional banks, credit unions and other lenders. Capital companies offering these loans are generally known as “business capital loan” companies. They are available in all 50 states in United States. To apply for a working capital loan, working capital cash advances must be received from an accredited lending bank or mortgage company.

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