There are many ways to finance your working capital requirement. Due to external fluctuations in the cost of raw materials, products and services, you really need to ensure that you have some margin for error. If you don’t allow for some leeway, strict budgeting may not be enough to prevent your business from running close to or breaching the red line. You should investigate all options available to aid your business financially. Obtain quotes from several lending companies, talk to financial advisers and accountants and make sure that you are completely aware of what you’re getting into. 

Business collateral loans are commonly known as secured loans. Using assets such as buildings for collateral, this type of loan is ideal for someone with an imperfect credit rating. If for whatever reason you are unable to repay the loan, the lender has full authority to seize the collateral as compensation. The creditor can then sell the collateral to raise the required funds to pay for the loan. Sufficient collateral is required to allow for application for this type of loan. If you have no collateral, you will have to look elsewhere. 

If you have a good credit history, you may be able to apply for an unsecured loan. An unsecured loan can be quite difficult to acquire as the lender cannot claim collateral in the event of the borrower’s inability to repay. It is therefore important that you back up your good credit rating with a water tight business plan. Another type of unsecured loan is one with a “personal guarantee”. If the business defaults on the loan, the borrower is personally responsible for payment of the loan.  

A line of credit is another method of working capital funding. This type of loan is a source of credit made available to the business when the need of financing is urgent. Like a personal overdraft, interest is only applied when the credit is in use. This type of loan is short term as the interest can be quite high. The amount of credit made available is set in advance of borrowing and is affected by the credit rating of the applicant.

Business Loans, General working capital loans, business loans, working capital funding