An Overview Of A Working Capital Loan

A business loan which is raised for the purpose of smooth functioning of day to day functioning of a company is general working capital loan. However there are very few times when businesses require to raise money for their daily tasks. Thus working capital loans can also be termed as a veritable life saver in many kinds of situations.

A typical business has various kinds of finance needs. These finance needs could be anything from purchasing equipment, to opening new branches or remodeling or reconstructing existing ones, to promotional or advertising programs, to paying off some kind of debts. And all these needs can not be always met by the government business loans. Government business loans are not easy to get, and take a lot of time to materialize.

So, a working capital loan is the best way to deal with multiple needs. It is much better than small business loan with bad credit as financing here is done in very less amount of time.

A general working capital loan can be raised as a secured or unsecured loan. A secured loan is the one where collateral is received in return for the money. The collateral can be anything like a factory, house, inventory or even jewels. These assets can also be given as collateral even if there are existing mortgages on them.

Although the amount of collateral for a working capital loan can differ according to banks, almost all of them generally look at information like credit ratings and other small business loan information to see your credit repaying history. Some banks even ask for guarantees from the borrower.

Unsecured working capital loans are given to only those people who have a very good credit history and have the minimum or no risks of non-repayment. These loans are generally taken for starting a business and sometimes they also act as small business debt consolidation loans.

A working capital loan comes with its share of advantages as well as disadvantages. The most important advantage is that it is greatest source of quick or immediate cash. For people with bad credit and business loans dried up this is the best alternative. This type of loans can help overcome cyclical overturns that happens in all kinds of businesses. It is even considered better than government loan for small business as it can provide quick money to avoid short term shocks to the business.

The biggest disadvantage of a general working capital loan however is that they meet only short term needs. They are insufficient for long term projects or plans or situations which require huge cash.