5 Questions To Determine If You’re Ready To Apply For A Working Capital Loan
by Arina Smith Financial Planning 13 September 2017
Working capital finance has a huge bearing on how competently your business operates on an everyday basis. Here are 5 questions that you need to ask yourself before applying for a working capital loan.
Working Capital Loans are one the most commonly used forms of financing and can help your business meet monetary needs for day-to-day operations. A business requires working capital finance to maintain stability when the demand fluctuates, or to purchase stocks and ramp up on manpower to prepare for increased seasonal sales. Both these scenarios lead to a deficit in cash flows, which if left unmet, can lead to loss in income. You can easily overcome such cash flow hurdles by applying for a working capital loan. However, there are few points that you must check before applying for the loan.
5 Questions To Consider Before Applying For Working Capital Loans:
1. What Is Your Credit Score?
Your credit score plays an important part in the approval of any working capital financing option. Lenders check your credit score as most working capital loans are collateral-free loans. This means that the only security a lender has that you will make timely repayments is good credit behavior in the past. Make sure that you have a high credit score and that your credit card bills and other debt has been cleared or paid on time. If you don’t have a good score, don’t worry. Improve your score by clearing credit card bills and by paying off any outstanding debt.
2. What Is Your Business Vintage?
Most lenders check your business vintage before approving your loan. This is nothing but the period for which your business has been operational. A business that has been in existence for at least three years is eligible for a working capital loan and can secure financing with ease.
3. What Is Your Monthly Revenue?
Ensuring stable revenue every month is difficult as it depends on the market and your sales. However, there is a certain limit that you have to maintain to ensure that you qualify for the loan without any setbacks. Set a target for your monthly revenue and work on improving your sales, coming up with new sales strategies and different schemes, etc. This will help you to boost your monthly revenue and get a working capital loan more easily.
4. Do You Have Unpaid Debt?
If you have unpaid debt, then your loan may take longer to process. Lenders usually don’t feel confident about lending money if you already have a loan that you’re currently repaying. From your point of view too, taking another loan may place you and your business at risk. That is why it is important to make sure that all your debts are cleared or at least will be cleared soon.
5. Have You Done Your Research Well?
Before you apply for working capital loans, do your own research regarding different lenders. Understand the terms and conditions of each lender and check which lender will help you meet your requirements quickly and conveniently. See if your lender offers you a working capital loan with a line of credit facility. This can reduce your EMIs and help you manage your cash flows more easily.
For the smooth running of your business and to increase your business profitability, taking a working capital loan may be the best idea.
Major Benefits Of Working Capital Loans:
- It is collateral-free
- It offers fast processing
- It lets you apply online and manage your account online too
Now that you know what to consider before applying for a working capital loan and the benefits it offers your business, it’s time to approach the right lender.
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