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Key Questions To Ask Before Getting A Working Capital Loan

Oct 19, 2020 10:27 PM EDT | By Ernest Hamilton
Key Questions To Ask Before Getting A Working Capital Loan
(Photo : Key Questions To Ask Before Getting A Working Capital Loan)

Every business needs money to survive, with capital routinely being needed to cover everything from premises acquisitions and new equipment purchases to utility bills, employee salaries, and so on. Since it isn't always possible to generate sufficient cash through sales and services, many businesses may choose to seek out financial aid and business loans from banks and lenders.

Business loans can prove to be invaluable when it comes to setting up new companies, keeping companies running during difficult periods, and covering key costs necessary for expansion and development. One of the most common types of business loan you might seek is a working capital loan.

As the name implies, a working capital loan is used to cover the costs of a company's regular working operations. It's not used for purchasing new pieces of equipment or investing in expansion; it's simply for covering short-term, immediate bills and payments like rent and payroll. If you're considering working capital loans for retail businesses or any other kind of business, here are some key questions to keep in mind.

How much money do you need? 

Clearly, one of the first questions to consider when thinking about any kind of loan or financial aid is how much cash you actually need to cover your costs and pay off your bills. When it comes to working capital loans, the maximum limit is usually around $200,000, which should suffice in most cases, but it's important to ensure that you know how much money you actually require. 

Borrowing too much or failing to borrow enough could have a range of negative consequences, and it's worth consulting with your own financial team and experienced lenders to figure out the correct amount you need.

How soon do you need the money? 

If you're looking for a working capital loan, it's highly likely that you need the money as quickly as possible. This kind of loan is usually reserved for covering short-term, immediate costs, so it can be a great option for businesses in urgent situations. 

Some lenders and banks can take weeks to approve loans and pay out funds to businesses, but working capital lenders are often much faster, able to supply cash within just a couple of days in most cases.

What are the requirements? 

When you apply for any kind of loan or financial aid, you'll usually need to meet a list of requirements in order to actually qualify for the aid you need. This is where many businesses can encounter problems. Banks often have strict rules and limits regarding business loans and financing, often rejecting new and smaller businesses altogether due to their lack of experience or revenue, or their weak credit scores. 

If you shop around, you may be able to find lenders that are more willing to judge applicants on a case by case basis, rather than handing out widespread refusals based on just one or two metrics. Many lenders will be willing to look beyond credit scores and learn more about your business to work out a working capital loan plan that works for you.

Have I considered all the options?

Even if the situation is urgent, it's important not to rush into any decisions when it comes to finding funding for your business. If you act too fast and make the wrong decision, the consequences could be catastrophic.

This is why it's important and widely recommended to take the time you need to explore options, consult with different lenders, and find one you can trust, with the best rates and most reliable standards of service. Finding the right lender and getting the best deal for your company can put you in a much stronger financial position for the future.

What are the details of the loan? 

After finding a lender and loan you feel comfortable with, be sure to take some time to look into the specifics of the arrangement. Ensure that you're happy with the fees, term, rates, and so on, and check that the loan truly meets all of your needs before proceeding. 

Ask your lender any additional questions you may have to learn more, such as whether or not you can pay off the loan early without any penalties, as some lenders will be more flexible and forgiving than others.


Ultimately, finding a working capital loan doesn't have to be difficult, and even if banks say no, there are plenty of other lenders out there willing to help out. Take your time and keep these questions in mind to find the right loan for you.

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