Various, unforeseen situations can cause a temporary loss of financial stability. What counts then is immediate reaction in order to regain liquidity of funds needed for current needs and liabilities. One of the possible solutions then is a revolving loan. What is it and who will it be suitable for?
Working capital loan – what is it and in what situations will it work?
The working capital loan is characterized by the fact that it is intended to finance the current demand of the company. We can spend it on the purchase of goods, means of production, raw materials necessary for the further functioning of the business, or to settle receivables from contractors and tax authorities. Working capital loans are often necessary help for many small and medium enterprises exposed to temporary loss of financial liquidity. Its characteristic feature is that it is usually not secured in real estate – mortgage. However, in some cases, banks use this type of collateral.
Revolving loans can be divided into two types – revolving loan and non-revolving loan. The first of these occurs when the bank grants the borrower a certain amount of money that the borrower can withdraw at any time, and then top up and re-use the allocated limit. This solution is also called the overdraft line. A working capital loan for companies also has several determinants that will tell you when and for whom they work best. Companies should think about this solution when:
- are exposed to situations in which revenues do not always coincide with current expenses, e.g. subsequent repayment of liabilities by customers.
- there was a sudden expense, e.g. the need to buy new equipment, or a major breakdown requiring funds for repair.
- they need additional finance for investments – the working capital loan has a low interest rate of 3.5%, negotiable. Thanks to this, the company can gain additional funds for development at a low cost.
Working capital loan for companies – interest, disadvantages, advantages
As mentioned above, a low interest rate of around 3.5% is a great opportunity for companies to invest at a low cost. Many banks offer the option of negotiation. We can also count on attractive offers using brokers’ services. This is an important advantage of this type of solution. What other advantages does a working capital loan have for companies? Interest rate at an attractive level, long repayment time [in the case of non-renewable, up to 120 months, in the case of renewable up to 10 years], repayment of installments tailored to the needs and capabilities of the borrower, as well as the possibility of entering interest in the costs of the business.
Working capital loan for companies – summary
This type of loan is a great solution, especially for small and medium-sized companies that need temporary support in maintaining financial liquidity. A revolving loan gives you this option. We have two options – renewable and non-renewable – in the case of the former, the loan period is up to 10 years. Many attractive amenities make it a convenient solution also in the case of planned investments or unforeseen expenses.