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Working capital is crucial to every company to run the business. Yet almost every firm encounters a shortfall from time to time, and needs working capital loan to tie it over.
Unlike other business loans, you will generally not be required to specify any purpose of the borrowing, as the loan will be short term and clearly intended to cover cash flow issues or unexpected need of cash for a large order and so on.
A working capital loan is typically used to cover short term funding requirements. This means that it is often used by seasonal businesses to pay unexpected bills and to take advantage of short-term growth opportunities.
Working capital loans are easier to obtain than longer term loans as the repayment periods are short and there are normally no collaterals involved. Lenders can recover their loans in a short time, which minimizes the default risk over longer repayment periods.
As this is seen as a short-term business financing solution, the annualised rates may not be as attractive as on other types of loans. This is worth bearing in mind when making a final decision on the most affordable business loans to choose from.
Failing to repay the loan on time may result in an adverse effect on your credit score. This may make it more difficult to obtain an affordable loan for your business in the future.
Due to the short repayment term, some lenders may charge a processing fee in addition to the interest payment in order to recover the underwriting costs.
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