If you’re looking to start a business, you’re probably already researching some financing options. While no two business owners have the same needs and/or wants, there are certainly many business owners who have looked into the option of working capital loans. However, as with every other loan option, there are pros and cons to consider before considering this investment.
Here’s a short list of some of the pros of a working capital loan:
Because working capital loans are specifically designed for the short-term, you’ll be prepared in the event of any kind of financial setback. This is especially helpful if, as a business owner, you need to take care of any sort of bills (such as utilities and rent), or you need to pay your employees.
Working capital loans don’t require any sort of collateral. Other types of loans require you to put up real property as a “guarantee” that you’ll be able to pay back the loan, but working capital doesn’t work that way.
To that end, too, because working capital doesn’t require collateral, you’ll always retain ownership of your business.
Of course, there are plenty of drawbacks to working capital loans:
Repayment isn’t optional. This means that, if your business fails and you file for Chapter 11 bankruptcy, your working capital lenders will make a claim towards you, and require repayment before everyone else.
This type of loan can have a negative impact on your credit. Before you take on this, or any other kind, of loan, speak to your financial advisor to make sure that this is a good option.
When you are ready to start a new business, it is critical to understand what working capital loans are and what options you have available to you. Regardless if you’re providing a service or selling a product, the best way to start is to get your ideas on paper and find the right financial advisors and resources to help you. For more information about us and our services, contact us today to see what we can do for you and your business.