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Working capital explained for everyone

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This article is published in collaboration with Scutify, where you can find real-time markets and stock commentary from Robert Marcin, Cody Willard and others. Download the Scutify iOS App, the Scutify Android App or visit Scutify.com.

In case you work in the field of business, you will definitely want to know more about several notions that help you understand better the way everything works. One of these is referring to the net working capital. A business requires being ready for all kinds of unexpected events and doing that is not easy as you may think. Business loans are hard to obtain and they require focusing your attention on each thing. This is a mini-guide to help you organize every concept and use them properly later on.

What requirements should you respect for obtaining a working capital loan?

Of course, when applying to obtain a capital loan there are some requirements that you need to fully meet. Firstly, you'll have to generate a certain amount of profit during the period of one year before even considering applying for such loan. This condition is paramount for lenders simply because it says something about how your business works during the year. These requirements started to become more and more flexible in the last few years and the amount of profit needed has decreased lately. With a linear profit, you won't have to worry about anything. Plus, think about solving whatever has to do with your paperwork first.

There are several lenders that approve only a specific type of business in a specific industry, so be careful when you are choosing your options. Collect all the data you need early enough because otherwise you will have to confront late invoices.

What kind of loans should I know about?

There are several types of working capital loans that you will want to know about in order to choose what's the most suitable option for you. For instance, the term loan is the one that works best with small businesses that encounter problem in the sector of finance. Lenders ask for powerful forecasting powers regarding where the business is facing to. Banks are quite flexible when it comes to choosing a term loan. The next possible option would be cash advance loans but these are dedicated to people that are able to pay the amount in a short time. Retail stores are the ones that usually apply for this kind of loan simply because they are able to pay the cash advance out of the profits that they obtain in the immediate period after.

Choosing the appropriate type of loan is paramount but for doing this correctly it is required to know what your business plans are for the future and you should be capable of previewing the period that comes next in terms of profitability. If you know that the future is not looking friendly and a cash crunch seems to come closer and closer, rethink your options and do not sink deeper into the dark world of debts. Making such decision takes time and a lot of planning and that's exactly why you will have to put every resource you have into this. After all, this is your success in the game.


This article was written by Adam Monson for on .

This article published in collaboration with Scutify, the best app for traders and investors. Download the Scutify iOS App, the Scutify Android App or visit Scutify.com.

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