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Loans (borrow money)

Home > Raising Funds > Loans (borrow money) > Working Capital Loans
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Working Capital Loans

Working Capital Loans are great for quick cash, especially in emergencies. They are also a great way to increase your cash flow to invest in new business opportunities.

What Are Working Capital Loans?
What's The Difference Between Secured And Unsecured Loans?
What Are The Common Types Of Working Capital Loans?
What Are Some Of The Advantages And Disadvantages?
What Working Capital Loans Does The Government Offer?

What Are Working Capital Loans?

  • They are short-term loans meant to increase your cash flow.
  • They are often used to fund the daily operations of your business.

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What's The Difference Between Secured And Unsecured Loans?

  • Working Capital Loans can be secured or unsecured.
  • A secured Working Capital Loan is one that is backed by an asset and/or personal guarantee.

    • The asset required can be a house, factory or inventory. They can be fully paid up assets or assets with existing mortgages or loans.

    • How much collateral the bank or financial institution will ask for depends very much on their assessment of your ability to pay back the loan.

    • The bank may also require personal guarantees from the owners and/or directors. They must be ready and willing to put up their own personal assets to back the loan e.g. family home, shares and stocks.
  • Lenders give unsecured loans only to borrowers whom they consider to be low or no risk. Start-ups are generally viewed as risky and are unlikely to be granted unsecured loans.

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What Are The Common Types Of Working Capital Loans?

  • There are many different types of Working Capital Loans. To complicate matters, different banks use different terms to describe the same type of loan.

  • To help you better understand and select the right loan, here are some common types of Working Capital Loans:

    Overdraft / Line-Of-Credit

    • An overdraft allows you to draw funds beyond the available limit of your bank account.

    • The maximum amount you can overdraw is your line of credit. The terms and amount depend on the relationship you have with your banker and his/her assessment of your credit worthiness.

    • Overdrafts are flexible and simple to operate. You pay interest only on the amount you have overdrawn. However, the interest rate charged is usually 1-2% above the bank's prime rate.

    • Suitable for: All businesses and start-ups.

    Short-Term Loan

    • Unlike an overdraft, a short-term loan has a fixed repayment period - usually 12 months - and fixed interest rates.

    • You may be asked to put up an asset as collateral for this loan.

    • If your track record and relationship with the bank is good, the lender may even be willing to provide you with the loan without collateral.

    • Suitable for: All businesses and start-ups.

    Confirmed Sales Orders or Accounts Receivable

    • Loans based on confirmed sales orders or accounts receivable is another way to raise working capital.

      • If you need to fulfil a sizeable order of goods, but do not have the funds to do so, you may apply for a Working Capital Loan based on the value of the contract or order.

      • If there is new opportunity round the corner and you need funds to take advantage of it, you may apply for a Working Capital Loan based on the value of your accounts receivable. Accounts receivable is the amount of money you have billed your customers but have not yet received payment.

    • If your customers are established and reputable, the lender may be willing to help ease your cash flow problems.

    • Suitable for: All businesses.

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