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Working Capital Loan

Take care of your day-to-day business expenses with a working capital loan.

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A working capital loan is short-term funding provided to a business that allows it to keep running from day to day. This means that the operational expenses of the business are covered, even if the business isn’t making enough working capital to cover those expenses.

Find out how working capital loans work, to see if this type of borrowing in the right fit for your business.

How does working capital finance work?

There are many purposes for a working capital loan, such as:

  • Finding the money to pay your employees who have been waiting for their wages
  • Growing your team as you and your current employees can’t handle the rush
  • Purchasing new stock for your business if demand outweighs supply

Depending on the lender, a working capital loan is an unsecured business loan, which means you do not have to put down any assets in order to be approved. Rates vary between lenders and some lenders offer risk-based pricing, so the rate will vary between businesses.

What are the main benefits of this loan?

The main reasons you would benefit from this type of loan are as follows:

  • Easy online application process. Most lenders allow you to apply online for a business loan.
  • Flexible repayment terms. As lenders are aware this type of loan is for businesses where cash flow ebbs and flows, they generally offer flexible repayment terms.
  • Loan terms. The minimum loan term is 1 month and the maximum is typically around two years, so you can select the loan terms that work best for your business.
  • Quick finance. As money is needed fast in order to remove pressing business debts, the loan amount, once approved, will be in your account in a short amount of time. How quickly varies between lenders but it can be in as little as one business day.

Are there any restrictions to be aware of?

There are some restrictions associated with this type of loan, including the following:

  • The money must be used on business expenses. Money is only loaned to you on the provision that it will help out your business and its cash flow problems. Therefore, it must only be spent on items such as stock or employee wages, instead of a new car you might have had your eye on.
  • Your business may not meet the eligibility criteria. It’s important to be aware of the criteria lenders will be looking for, such as how long your business has been operating and its annual cash flow.
  • Not all lenders are flexible with repayment terms. This is something to keep in mind before you apply as you don’t want to be hit with a late repayment fee if another lender is offering more flexible terms.

Is a working capital loan right for you?

Here are a few things to consider when deciding whether a working capital loan is the right credit option for your business.

  • Can my business afford this loan? It’s important to consider whether your business will be able to afford to pay off the loan once it’s been approved.
  • Secured or unsecured loan. You can choose between a secured or unsecured loan. It depends whether or not you want to put an asset such as your car, home or a business asset, against the loan you apply for, or take on more risk and go for an unsecured loan.
  • Is there a flexible repayment option? Make sure there is a flexible repayment option that will be manageable against the ebbs and flows of your business’ cashflow.
  • What are my options? As working capital finance comes in a variety of options, such as a cash overdraft, a personal loan or discounted invoices, it’s important to figure out which will work best for your business and its needs.

Is my business eligible?

Here are some criteria to keep in mind while determining whether or not your business is eligible. In order to apply for working capital finance, you must:

  • Be a registered business in Hong Kong
  • Meet the turnover requirements set by the lender
  • Meet the minimum operating terms set by the lender, and
  • Commit to making your repayments under the terms you have agreed.

As long as you can meet these requirements, finding a working capital loan that suits the needs of your business becomes a lot easier.

Frequently asked questions

How much can I borrow?

This varies from lender to lender. However, as lenders are dealing with a business rather than an individual, the amounts you can borrow are typically much higher than with a personal loan.

What is the typical loan term?

The typical loan term for a working capital loan is 1 to 18 months. This allows your business to effectively gather the funds to pay off the loan.

How is interest charged?

Interest is charged in one of two ways. The first is the standard method, where you receive a rate when you take out the loan, and that rate is applied to the amount you borrow. Alternatively, the interest rate you receive can be based on the risk your lender is taking by loaning you the money; this is called “risk-based pricing”.

What are the alternatives to working capital loans?

Depending on the amount of finance you need, you can apply for a bank overdraft, ask for discounted invoices from your suppliers, apply for a credit card or take out a personal loan. When it comes to any type of loan, it’s always a good idea to try to think realistically about what would best suit the business in terms of finance volume, flexibility and repayments.

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