STARTUPBIZHUB

What is a Working Capital Line of Credit

If you want to ensure the success of your business, you will not only need startup capital but working capital as well. If your daily profits are not able to cover the daily expenses, you will need working capital line of credit.

There are certain conditions that you have to meet in order to secure the needed money.

Working Capital Line of Credit

When you own a business, you have to possess adequate knowledge on how to run the business effectively. One wrong move can cost you the entire business. Prior to opening the business, you will need startup capital to lease out the business space, to purchase inventory, insurance, secure a license, and cover all relevant expenses. Once the business is launched, you will need working capital. Everyday, the operations of the business will entail expenses and in order to support the daily functions, you need adequate working capital. You need to be prepared because there are times when the day’s profits won’t be able to cover all the expenses for the day.

In these rare times, you can use your working capital. With the money, you can now purchase inventory and other essentials. When your expenses exceed what you’ve expected, you have to be prepared to get a working capital line of credit. This will take care of all your urgent expenses and will act as a convenient tool, to avoid business failure. This is basically a loan that you can get from your bank or any other financial institution. However, it is to be distinguished from a traditional business loan.

The Flexibility

Conventional loans should be repaid on a monthly basis but with the working capital line of credit, it’s different. The payback option is much more flexible. It is up to you whether you will pay the interest only or the amount that you owe, as long as you’re following the terms of payment. This type of loan is also much easier to secure. It will help your business gain more profits and you can run the business with ease. You don’t need collateral for the line of credit although the rules may vary from one financial institution to another.

There are certain conditions that your business should comply in order to get a line of credit. In most cases, you have to prove to the financial institution that you have the capacity to repay the money. Some banks require down payment but others don’t; if you want to find the best deals, you have to do your homework. Meet the conditions set by the bank and you can easily obtain the needed working capital. You have to make sure that your capital assets exceed your line of credit. Don’t rely on this option to get the needed working capital. Over time, you have to operate the business using your OWN working capital if you truly want to succeed.

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2 Comments

  • mthokozisi said on March 28, 2014
    i need working capital to start my business
  • Rasmita mohanty said on January 20, 2016
    Hi its rasmita, badamba ctc i have finished my bcom with hons and pgdca i want to self employed myself so how can i help my self

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