Working capital is the ratio of your business’s current assets and liabilities. A business needs working capital to pay the daily running cost and bills, pay workers/employees, keep its cash flow strong, fund larger projects, and stay afloat during even the toughest times. But sometimes, you may struggle to grow your business or need additional working capital for bigger projects. This is where working capital financing can help.
With the right working capital partner, your business can survive tough economic times and grab advantage of big opportunities when they arise. However, companies’ various working capital financing options can confuse choosing the right one. Moreover, you have to consider your company’s needs, the type of services offered by different providers, associated fees, and many other factors.
So, here are the five important steps for choosing the right working capital partner for your business:
1. Check out the various loan options
The most common working capital loans include short-term loans, trade creditors, accounts receivable loans, bank overdrafts, factoring loans, invoice discounting, lines of credit, etc. Thus, it is important to compare these different options before selecting the right working capital loan to grow your business.
2. Compare eligibility criteria
The eligibility criteria differ from lender to lender, and you must meet them to get your loan approved. The common eligibility criteria for a working capital loan usually include factors such as the applicant’s age, business turnover, credit score, age, and the company’s credible financial history of profits. Make sure you check the eligibility criteria of your chosen working capital partner to avoid any delays in the financing process.
3. Assess the overall borrowing cost and compare it with different lenders
When availing of a working capital loan, it’s important to assess the overall cost of borrowing. This includes the interest rate, total loan amount, and tenure (or repayment period). This way, you get a comprehensive picture of different offers and increase your chances of getting the best deal possible.
Remember that the advertised funding cost often is not the actual cost. Some lenders may charge processing fees, closing fees, and other fees that are not immediately apparent. So, read the fine print carefully and ensure you understand all the costs before taking out a loan.
5. Examine the processing and disbursement time
Knowing the processing and disbursement time for a working capital bank loan can help you to manage your business finances better.
For example, if you expect to use the loan funds to purchase inventory, you may need the funds immediately. Otherwise, you may end up losing out on sales. Similarly, if you are planning to use the loan funds to expand your business, you will need to know how long it will take for the funds to be disbursed to plan accordingly.
The working capital partner you choose can make or break your business. Following these five simple steps, you can select the best working capital partner for your business growth. Do note that depending on the lender, the processing and disbursement time for a working capital loan can vary.