What is A Working Capital Term Loan?
A working capital term loan is a loan meant to finance daily operations in a business. Typically, it’s meant to cover the cost of a company’s short-term operations. Here’s why it could be beneficial for your company.
A working capital term loan can help a business generate funds for short-term requirements like paying wages or production costs. Generally, a loan for working capital is given for a short term. These business loans are a feasible option for a start-up or rapidly growing business that may not have instant funds at its disposal. The loan amount depends on the cost of running your business.
Why Should I Apply for a Working Capital Term Loan?
Despite having raised funding, a small business has short term fund requirements from time to time that are essential for its growth. Instead of using cash (that could be put to other use) or turning to personal funds, a working capital term loan is a more viable option. Such a loan would work especially well for a seasonal business, which may require more inventory or need additional marketing and advertising spend.
Benefits of a Working Capital Term Loan
A working capital term loan can prove to be a boon for growing businesses by offering you an advantage over competition. Read on to find out how you can benefit.
It prepares you for any temporary financial crunch
It’s commonplace to supply vendors goods on credit, which blocks a large amount of funds. However, cash is still required for the daily functioning of the business. With a working capital term loan, you will be bailed out easily in times of shortage.
You don’t have to dilute equity
With a working capital loan, you can ensure that the ownership of your business remains in your hands. Borrowing from equity investors involves diluting your share in the business. In contrast, by borrowing from a financial institution, your liability ends with the repayment and the control of your business remains in your hands.
Option of Unsecured Loans
Loans are usually categorized into secured and unsecured loans. A secured business loan can only be granted against company assets. With working capital loans, financial institutions offer you the option of unsecured loans, subject to the firm having a favourable credit history. The firm won’t have to mortgage its assets for acquiring a loan.
Quick and Flexible
Unlike the tedious paper work and approval process associated with term loans, a working capital term loan can be obtained quickly. Often, there’s a lot of time wasted in the lengthy process of acquiring a loan, without the guarantee of approval. With working capital loans, there’s some amount of flexibility as far as interest rates and repayment conditions are concerned. This helps businesses easily cover any seasonal gaps in working capital without having to account for long-term repayment.
It allows you to gain from vendor discounts
Often, vendors offer seasonal discounts on purchases. A loan will allow you to make the most of these discounts, in case your funds are parked elsewhere.
So, if you’re a small-sized or growing business, a working capital term loan is a great option to tide over a short-term financial crunch. Bajaj Finserv makes it easier for you by facilitating such business loans. It offers you the option of Flexi Loans with easy repayment terms.