5 Keys to Understanding Working Capital Loans

May 28

Working capital is essential for the daily operations of any business. Working capital loans can be a valuable tool for managing short-term financial needs. Here, we present five keys to understand better these loans and how they can benefit your business.

1. What is a Working Capital Loan?

A working capital loan is a financial tool that allows businesses to cover their daily needs and facilitate growth. This type of loan can cover operational expenses such as payroll, hiring new employees, expansion, renovations, marketing, and acquiring machinery, among other things.

Business owners are always looking for growth, improvements, and long-term stability. However, they may need a financial boost in various situations to cover everyday needs or emergencies. Here are the keys to understanding working capital loans.

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2. Purpose of Working Capital Loans

Working capital loans are designed to cover the daily operational expenses of a business. This includes payroll, rent, supplies, and other recurring costs. Unlike long-term loans intended for purchasing fixed assets or business expansion, these loans are short-term and meant to maintain the business's liquidity and day-to-day operations.

3. Types of Working Capital Loans

Capifinders offers three main working capital products, designed to meet different needs:

Term Loan
A short or medium-term loan that covers business needs over periods of 6 to 18 months. It provides capital quickly when cash flow is low and offers shorter repayment periods than traditional loans. These loans have an annualized rate (APR) and fixed payments that can be weekly, bi-weekly, or monthly.
Line of Credit
A line of credit is revolving financing, meaning you only pay for what you use, and once repaid, the amount becomes available again. You can manage the amounts and usage periods, paying only for the capital used and the time of use. Payments are monthly with an annualized rate (APR).
Merchant Cash Advance
This financing is not considered a loan but a purchase of a percentage of future business sales in exchange for a set cost based on the risk level. It operates with simple interest and daily or weekly payments.