Top 5 Ways Working Capital Loans Can Work For Your Business
Working capital loans provide essential funds to businesses that can use the funds and keep their operations going. Businesses with access to such funds can keep themselves afloat by being able to pay for expenses like wages, supplier payments, overhead expenses, rents, raw materials, short-term inventories, etc.
Micro, small and medium enterprises (MSMEs) prefer this type of funds as these provide cash flow needed for day-to-day operations and long-term survival.
Businesses with a lack of working capital can unlock money tied up in unpaid bills with invoice discounting. KredX provides businesses with the opportunity to raise working capital by discounting unpaid invoices of blue-chip companies. It provides a zero-liability bill discounting service with just a few days of processing, provided that you meet all eligibility criteria.
Now, let’s take a look at the various benefits of working capital loans.
- Maintaining Necessary Cash Flow Levels
Businesses need a steady stream of cash flow to pay for mortgages, salaries, rents, utilities, inventory items, etc. With access to working capital, businesses can monitor and maintain their cash flow, meet day-to-day expenses, pay off existing debts and refill their inventories. Hence, cash is considered to be the blood of a business as it makes sure to keep a company growing sustainably.
Working capital loans also allow businesses to meet unexpected demands and keep them working optimally. For example, if a company gets a sudden bulk order, they will need the funds to buy large quantities of raw material. Working capital loans allow businesses to take advantage of such rare opportunities that allow rapid growth.
Capitalising On Seasonal Swings
Many businesses are cyclical in nature, where the activities double or triple during certain festival periods or holiday seasons. In India, where there are plenty of festivals all-round the year, businesses will need to make large-scale preparations to meet the festival demands.
During these periods, companies need additional funds for extra inventory, increased advertisement, employee bonuses, payment for creditors, and more. Hence, companies use working capital loans to prepare themselves fully to capitalize on festival seasons.
Aside from seasonal upswings, many businesses also have lean periods where they find it challenging to continue operations. As such, they require working capital to pay for regular expenses like rent, wages, electricity bills, loan repayments, etc., to keep the business afloat.
- Preparing For Emergencies
All businesses come with risks, and thus, no matter how well-prepared a specific business model is, it will always face unexpected expenses. A number of external factors can cause this, including:
- State of the general economy
- Damage from natural disasters
- Unexpected raw material shortages
- Changing interest rates
- Equipment breakdown
- Cancelled bulk orders
The Covid-19 pandemic demonstrated how uncertainty and economic fluctuations could disrupt businesses. Having access to working capital loans allows companies to cushion against these mishaps and navigate their way out of such crises.
- Helps To Keep A Company Growing
All businesses need to grow and expand but require enough working capital to do so. With additional funds, companies can grab opportunities as and when they appear to reach their true potential.
Companies with access to working capital loans have a larger margin of error and can scale up their business more easily. They can take larger orders from customers without affecting their current orders. Having additional funds also allow businesses to open new stores, prepare marketing campaigns and enter into mutually beneficial deals.
- Overcoming Any Financial Hurdle
Even under the best of circumstances, a business can have various financial glitches that affect its operations. It could have too many fixed assets creating high maintenance charges. Or the business could have low cash flow, which affects daily operations and lowers their credit rating.
Even a slight drop in cash flow can put serious financial pressure on a company, which could lead to higher debts or missed loan repayments. This can lower a business’s credit rating resulting in higher interest rates and low financial credibility in the market. Using working capital loans, businesses can handle these complications and maintain daily operational needs.
Businesses need quick and easy access to funds to run their day-to-day operations, address unexpected expenses and balance their liquidity and revenues. With enough working capital, they can also stock up their inventories before festive seasons or make expansions.
Working capital loans allow companies to solve all of these problems easily and quickly. These funds can be used to pay necessary bills, salaries, credit card charges, purchase raw material, etc, and keep the business going.
KredX allows companies to unlock funds stuck in unpaid invoices with their invoice discounting service. It gives them quick access to working capital without impacting their balance sheets, allowing them to function smoothly.