Working Capital Loan is an integral component to ensure the seamless functioning of any company, especially in the case of small enterprises; whether it’s to get off the ground or for meeting everyday operating costs. Unless your company is funded by a wealthy investor, every company is in need of additional funds for a plethora of reasons ranging from salary payments, supplier commitments, emergency funding, investing in growth or any other costs paramount in staying competitive in your business space. Even if your company has steady sales and revenue, every firm encounters a shortfall at some time or the other and it can be a constant battle to ensure there’s enough cash in hand to make timely payments. This is precisely where working capital loans come to your rescue. However, just like with any other business loan, it pays to be aware of the various pros and cons attached to it before agreeing to borrow money for running your business.
1. Money in Hand
A lot of business owners make the cardinal sin of dipping into their own personal wealth to manage shortfalls in business. Working Capital Financing ensures that you have cash on hand to deal with any such contingencies instead of waiting for things to spiral out of control. When such a facility is readily available, it’s best to make use of it to prevent serious financial problems in your business.
2. Maintain ownership of your company
Unlike equity funding which results in your own equity getting substantially diluted which in turn results in a reduction in your autonomy, getting a working capital loan for SMEs will allow you stay in complete control of your business. The only commitment here is to ensure timely repayment of the finance availed, and in full, to ensure your business stays your business.
3. Hassle Free, quick application processy
Applying for a typical business loan can take up a whole lot of your valuable time and might not even end up getting approved. However, thanks to the hassle free process of procuring a working capital loan coupled with a rapid evaluation process ensures that your application is processed within no time and the funds are made available to you within a few days.
4. Collateral Free
Working capital financing generally comes in two types, secured and unsecured. Most business loans are unsecured and availing such a loan doesn’t require you to stake any sort of collateral like your plant and machinery, your land, inventory or anything else which is required to secure the loan terms. However, just because your working capital loan for SMEs is collateral free doesn’t free from your repayment terms as paying back the loan on time is crucial.
The Bottom Line
Borrowing capital can prove to be a lifesaver if procured for the right reasons. However, it’s crucial to analyze the risk-reward ratio before deciding if working capital financing is right for your business. I hope the information provided has given you an insight on the various pros and cons attached so that you make an informed decision before deciding to avail of working capital loan for SMEs.