Today, business owners face several challenges. One of them is the lack of adequate working capital. Working capital refers to the difference between a company’s current assets and its liabilities.
With that said, a lack of sufficient working capital can hinder a business from growing or expanding. This is because it won’t be able to pay employees’ salaries or retain them. So, the rate of staff turnover will be high.
Besides, a business with inadequate working capital cannot settle debts or pay for its operating costs. Hence, the business expansion would be definitely off the table. But the good news is that a business can overcome these challenges by taking and knowing how to get a small business loan with Credibly.
So, if you want to boost your business working capital and stay afloat, stick here for a few minutes. You’re going to learn the simple steps of taking a working capital business loan. But before that, you first need to understand what a working capital business loan is. Read on to get enlightened.
What Is A Working Capital Loan?
This is a loan you can take to finance your business’s daily operations or activities. Some of these include settling bills, compensating workers, paying for promotional campaigns, and much more.
You can take a working business loan from banks or other lending financial firms. Furthermore, working capital loans are payable on equal monthly installments for a specified period. The monthly installment comprises a portion of the principal amount and the interest. However, a lender may sometimes request you to repay a working capital loan via a lump sum. That’s why it can also be referred to as a ‘loan on demand.’
What Are The Steps To Obtain A Working Capital Business Loan?
While you might think that taking a working capital business loan is an overwhelming and daunting task, that’s not true. This is because there are only a few simple steps you need to follow when you’re applying for it.
However, it would be a good idea to ensure you’ve got the right information and understanding of your business goals as well. This will help banks and lending firms grow more confident in your business’s ability to pay.
With that said, here are some simple steps to follow when applying for a working capital loan.
Determine Why You Need A Loan
When applying for a working capital business loan, the first step is to determine why you need a loan. Doing this is essential because it will help lenders give a fair estimate of how much you actually need. For instance, the amount of loan required for settling employees’ salaries might differ from that of running promotional campaigns. So, what you are planning to do with your loan can determine the total amount you’ll be able to borrow.
Organize Your Documents
After determining why you need to take a working capital loan, the next step is to organize your documents. This involves updating all your financial records and keeping them in order. Some of these include tax reports, income and balance sheet statements, and other necessary documents. Organizing your documents helps simplify the loan application process.
Apart from that, you also need to have your business plan with you. A business plan is a road map for your business. It outlines your goals and how you intend to achieve them. Besides, it shows how you intend to use the cash. Having your business plan in place is vital because most lending institutions will ask for it before granting you the loan.
Educate Yourself About Working Capital Business Loans
Educating yourself about working capital business loans is another major step you shouldn’t ignore. This is important because lenders want to lend money to knowledgeable people. For that reason, you need to educate yourself about line of credit and terms of loans.
Understanding these aspects is important because it indicates that you understand your obligations and what you’re really getting into. For that reason, most lenders will trust you, and will more likely grant you a loan.
Another step you need to take before applying for a working capital business loan is to find collateral. This is important because most lenders will ask you to secure your loan with an asset. Banks and lending firms need this because they need an alternative asset in case you cannot continue paying for the loan. So, depending on the amount of loan you’re applying for, be sure that your collateral’s value can help you secure it.
Choose The Right Lender
Though there are several lenders out there, not all of them can best suit your business. Besides, other lenders charge high-interest rates. So, working with such a lender might only drown your business in crippling debt. But you can avoid this by working with a reputable lender.
There are several ways to learn about the reputation of a lender. For instance, you can go to their website and see what other clients say about them. Aside from that, you may try to inquire about the terms of their loan and even ask for an initial contract agreement to read their loan clauses, terms, and conditions. From there, you can assess if a lender would be practical and fair.
Make Your Pitch
After you’ve identified the right lender, the next step is to make your application. You may either go to their office or submit an application online. Whether you apply for the loan online or in the lender’s office, be sure to attach all the necessary documents. Attaching the required documents is vital because lenders won’t grant you a loan without them. So, if you want to increase your chances of securing your working capital business loan, make sure you scan and attach the required documents.
Wait For Loan Approval
After applying for your working capital business loan, the last step is to wait for approval. Some of the lenders might take 72 hours to approve your loan, while others might take longer than that. But whichever the case, it would be a good idea to contact them every few days to know the progress of your loan application.
Many businesses struggle with inadequate working capital and limited resources. This is a scenario where a business doesn’t have enough capital to finance its day-to-day operations. However, this problem may be momentarily averted by applying for a working capital business loan. If you want to apply for this kind of loan, then follow the steps above. As you can see, the process is actually quite easy and straightforward.