Key Takeaways:
- Working capital lines of credit are ideal for any business that needs capital for inventory, materials, and services.
- Working capital lines of credit are like short-term loans that help businesses keep their business running smoothly. They allow businesses to keep their cash intact.
- A working capital line of credit is comparable to a business credit card in that you only repay what you have borrowed. However, working capital lines of credit usually have better rates, terms, and higher line amounts.
What is a Working Capital Line of Credit?
A working capital line of credit loan helps businesses pay their daily operating expenses. The idea is that the company can borrow money as needed to keep things running smoothly. The borrower gets cash advances and repays the balance multiple times, up to the maximum credit limit, until the loan maturity date.
When the loan matures, you pay off the working capital line of credit, and the lender closes the account. The borrower can also choose to renew the loan to keep the working capital line of credit open.
A working capital line of credit is comparable to a business credit card in that you only repay what you have borrowed. However, working capital lines of credit usually have better rates, terms, and higher credit lines.
Reasons to Get a Working Capital Line of Credit
- Fill in Cash Flow Gaps: If your company feels the pinch between cash reserves, a working capital line of credit will ensure your bills are still paid.
- Example: Lawyer – Purpose: Working capital to support operational expenses between clients.
- Get Seasonal Funding: A working capital line of credit will give you an extra cushion to stock up on inventory or hire more people during a busy season.
- Example: Lawn maintenance services – Purpose: working capital to hire more employees during the spring and summertime.
- Cover Operational Costs: A working capital line of credit helps businesses grow and expand their customer base.
- Example: Restaurant– Purpose: working capital to advertise and market for a new location.
- Take Advantage of Profitable Opportunities: Working capital lines of credit help businesses take advantage of discounts or significant savings they would otherwise miss out on by buying materials or inventory in bulk.
- Example: Manufacturing company – Purpose: working capital to support accounts receivables and inventory purchases.
Useful Links
Collateral for a Working Capital Line of Credit
If you are looking to get approved for a working capital line of credit, there are a few things you’ll need to keep in mind about loan collateral.
- Collateral:
- Ensure you have the collateral to secure the loan.
- Collateral must be something you own outright and have no other lien on.
- Types of Collateral:
- Accounts Receivables
- Inventory
- Real Estate
- Collateral requirements depend on the following:
- Client relationships
- Loan Amount
- Type of Business
- Business Growth
- Overall Economy
Working Capital Line of Credit Highlights
- With access to a cash flow, you do not have to apply for a loan each time you need money.
- Lower fees and interest rates than business credit cards, offering a more cost-effective financing solution.
- Increase cash flow during periods of slower business activity, providing a buffer against economic fluctuations.
Final Thoughts
Exploring all your options and understanding the requirements before applying for a working capital line of credit is always a good idea.
If your business needs extra cash flow, schedule an appointment with a commercial lender today! TRB can help you find the right loan for your business. For more information, visit our business Loans & Credit – Texas Regional Bank website.
