Not having funds to keep your business in working flow can be a real hurdle to being successful. You might need to pay for day-to-day expenses like payroll, rent, inventory, or any short-term expense. A business working capital loan might be ideal.
This loan is a short-term loan to pay for anything you need to keep your business running. It is what is left over after subtracting your current liabilities from current assets and is usually unsecured and quickly approved.
These funds are not for investing in long-term fixed assets, e.g. equipment or property. But rather to help you get through things when cash flow seems tight.
So to make the most of your business working capital loan, we have outlined 4 ways to optimize your business working capital loan.
1) Keep to a plan
A prepared business plan depicts the use of funds to grow the business to you and the lenders. This loan may not seem as important as other loans because it has faster approval and less paperwork.
But not planning where the money will go will lead to misspending it. Having a cash flow estimate will help in planning how you will be able to pay off the loan and still have enough funds to pay for future expenses without the need for a loan.
2) Lining your business working capital loan’s source to its cause
Focus on how long you need the loan for and keep to that timeline. If a major client will pay you within the next couple of months, the loan must only be for that length of time.
You will be able to pay it off then. So if you get the loan for a longer period of time, you will end up paying higher interest fees and will waste your money.
3) The business working capital loan’s costs and fees
Compared to other small business loans, a business working capital loan generally has higher annual percentage rates (APRs).
So it is very important that you do your research in calculating exactly the cost of the loan from various lenders. This means shopping around to find the best deal, don’t settle for the first lender you approach.
4) Track all payments in your accounts payable
You can agree to pay monthly payments or through credit card sales. It is important to feature these payments into your cash flow estimates.
It might be easier and more beneficial to pay off the loan early. But determine an early payment has any penalties. This way you can remove the hassle from your bookkeeping.
Quick Tips When Taking Out A Business Loan
Taking out a business loan is really one way to expand your business. But are you prepared to apply for one? To increase your chances of getting approved, here are some tips for you to follow.
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