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Working Capital Loans: Definition

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In simple words, working capital loan is a loan that finances the daily operations of the company. Usually, they are used to cover wages or accounts payable. Lenders don’t finance long-term assets or investments. Such kind of financial help is especially suitable for companies that rely on seasonal revenue. In order to cover complicated financial times during an unprofitable season, companies apply for a working capital loan.

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The main benefit of it is a speed that allows a company to fix the financial problems in a short period and don’t create gaps. This loan doesn’t need an equity transaction. The control of the company entirely refers to the company owner.

Such loans are secured and unsecured. Companies with low or no credit also have an opportunity to apply for a business loan. Still, their choice is limited to the secured working capital loan.

The main drawback of the loan is high interest rates. Though the loan might be secured, business owners can still face the high rates. But it’s not a law, it’s a tendency. It’s possible to find lenders, who offer average interest rates and affordable loan terms.

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P.S.: Get your business funded in 2017.