Short working capital, also known as short-term working capital, is the money a business needs for day-to-day operation. These operations usually include the purchase of assets, inventory, and supplies and payments to rent, utilities, payroll, and loans. Proper management of this capital ensures long-term profit for a business.
Businesses obtain short working capital in a variety of ways, including the sell of products to customers and payments made to the business. Business owners can implement several strategies to increase their working capital without having to take out a loan. Many businesses choose to advertise themselves through various media, including newspapers, billboards, television, and radio. While these methods do cost money, effective advertising can draw in more customers to increase profits. When dealing with existing customers, business owners give discounts to clients who pay their accounts early. They may also charge late fees for customers who take a long time to repay their accounts.
Businesses also look to factoring when they are in need of short working capital. Factoring involves a business selling its accounts receivables to another company, called a factor. The factor then accepts the account payments from the business’s customers until the funds are repaid. A business must process credit cards for purchases, and must have been doing so for a time period specified by the factor. Factoring is not a loan; therefore, it protects a business’s balance sheet by not incurring additional debt.
A signature loan, also called an unsecured loan, is a loan that does not require collateral to back up the borrower’s promise to pay. The term “signature” comes from the borrower’s signed promise to repay the loan. Signature loan providers usually require the borrower to have a specified use for the funds, such as purchasing equipment, paying debts, or increasing working capital.
The amount loaned, interest rates, and terms of repayment vary from lender to lender. However, the majority of lenders will loan up to twenty thousand dollars at the rate of ten percent interest to be repaid between two and five years. Many lenders also do not charge any consulting fees and do not require a business plan to apply for a signature loan.
Business owners with good credit history have the best possibility of securing a signature loan. Lenders also look at a business’s ability to generate profits and effectively manage finances as an indicator for approval. A signature loan can steadily improve a business owner’s credit profile, which makes it easier for him or her to apply for additional funding in the future.
However, business owners with bad credit may also be able to secure a signature loan. An unsecured loan can help improve the borrower’s credit history. Business owners with bad credit should plan short-term and long-term methods of managing their debt. Once they have a set plan, it is best to talk with a debt consultant to determine if a signature loan could help their situation. If a signature loan is obtained, bad credit business owners should make sure to repay the funds in full and on time in order to improve their credit history.