In simple terms, working capital is the borrowed amount from a bank or other financial source to invest in operations and pay business bills. Hence, a working capital loan means the loan that a company borrows for getting the working capital. When talking about working capital, what we denote is cash. It’s the cash that is necessary to pay the bills and invest in new areas. It’s the cash that is essential to maintain your business.
Working Capital Loans vs. Traditional Business Loans
A working capital loan is different from traditional business loans. Business loans are usually provided to buy any business asset or even acquire new business. They are a fixed amount of money given in return for security. On the other hand, working capital loans aren’t secured. Also, there isn’t any fixed amount of working capital loan.
Why is working capital necessary?
Working capital loans enable businesses to do their day to day investments. It can be termed as the lifeblood of a company. No working capital and your business would stop functioning. Working capital determines your company’s financial success and failure. Having enough working capital is most important when you have just inaugurated your start-up. At this stage, companies tend to have negative working capital because they have to invest more than the profits earned. However, even if your business earns profit, the business can’t continue to operate if it fails to maintain positive working capital. It’s should have enough money to pay bills every month.
Usually, working capital is needed the most during any of the following times:
During the initial stage of your business, when bills are to be paid, but there is insufficient capital available in your bank. Because companies just start to bring in sales, they run short of capital. At such times, getting a working capital loan is necessary to allow businesses to meet the cash requirement shortages.
Working capital is also needed during the company’s expansion or growth. When you expand your business further and need temporary cash to fund the investments. Usually, in these cases, companies need a line of credit or loan from lenders who have been their long term partners.
That’s all about working capital loans. If you want to know more or have any doubts, you must consult a working capital loan broker Singapore.
