A business working capital loan is different from a business term loan as a working capital loan seeks to meet the everyday expenses of a business. A business term loan is a long-term loan that is repaid in monthly instalments over a long period of time, whereas a business working capital loan is a short-term loan. Here is a look at why a business working capital loan is required for a start-up.

A business owner invests a lot of money as capital, which is used to create business assets. However, a start-up also needs working capital to meet its day-to-day expenses and in some cases the expenses projected surpass the loan business plan. In most of these cases you struggle to get additional money into the company to meet these recurring expenses as the business grows. This is where a business working capital loan can help.

Reasons for which a start up requires a business working capital loan:

  • Better Prepared To Handle Financial Insecurity

One of the first signs of financial stress are reflected in the inability to meet the monthly expenses. This may result in a delay in paying the monthly small business development loan or paying the salaries. These discrepancies can downgrade the credit worthiness of a start-up, which may result in long-term consequences. A working capital loan helps to re-energise the business and can ensure that the start up is able to meet its monthly commitments on time and without stress.

Also Read : What You Should Know About Working Capital Loans

  • May Help To Retain Ownership of Your Business

When a start-up that has been funded needs additional working capital, you as the business owner, are inclined to get additional funding from the investor. This funding will further dilute your ownership in the business. An easy way to avoid losing further control of your business is to secure a working capital loan, which will help rotate the money in your business efficiently and effectively.

  • No Collateral is Generally Required

Business loans come in two categories. Secured and unsecured. While secured loans are those that are secured against some asset, unsecured loans do not attach any asset to the loan. Typically a working capital loan comes with no security. At best the raw material bought with the money raised from the loan is attached. In this case repayment is made as a percentage of the goods sold. Generally in a working capital loan the assets of the company stay secure.

  • Short Term Solution

Unlike a small business development loan, which provides capital for business development, a working capital loan is used to infuse money into the business when needed and is repaid in the short term. A working capital loan helps to keep the business buoyant and you do not need to plan a long-term repayment strategy.

  • Helps to Finance the Operating Cycle

The operating cycle is the period of time required by a business for making the initial payment to the vendor for parts, producing the goods, selling them and finally receiving payment form the customer. For a start-up, the operating cycle generally cannot be funded by the accounts payable alone. This causes stress to the business. With a working capital loan the money can be managed effectively to ensure payments to vendors are made on time.

Also Read : Things To Check While Availing A Business Working Capital Loan

Every start up can use additional funds to become more efficient and financially strong to deal with unforeseen events. A working capital loan is an ideal tool to unlock the capital that is already invested in the business. This surplus can then be used to further develop new markets or to improve business efficiency in the current one. Bajaj Finserv offers working capital loans that address the needs of your business in an effective and inexpensive way.

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