Special Kinds Of Loans
Small businesses often have trouble meeting their cyclical and short-term working capital needs. Special types of loans can be used to finance small businesses during seasonal slumps and fluctuations, finance the immediate costs of doing certain kinds of construction, supply and service contracts, or purchase orders. There are a number of kinds of loans that small business owners can use to maintain the existence and growth of their small businesses.
Working Capital Lines
The working capital line is a revolving line of credit (and it can sometimes go up to millions of dollars) that offers short-term working capital for small businesses, and there are a number of financial institutions fluent in these types of loans. They are not exotic or unique. They are not difficult to comprehend. These kinds of loans ensure that wheels stay greased on small businesses – so that businesses can keep operating and growing. Businesses that typically use these lines offer credit to their customers or have possession of inventory as their biggest asset. Disbursements are often based on the sale of inventory or the size of a borrower’s accounts. Repayment then comes from the sales of inventory or the collection of accounts receivable. The actual structure will be negotiated with a lender. There may be additional monitoring and servicing of the collateral, and the lender may charge additional fees to the borrower.
Seasonal Line Of Credit Program
A seasonal line of credit program can help support the process of building up labor, materials, accounts receivable, or inventory beyond the normal usage for spikes or slumps, as in seasonal fluctuations. However, there might be some requirements for the business to get the loan, such as having a one-year history or being able to demonstrated a seasonal pattern. Usually, a financial institution will offer the kind of loan, and they will allow for other types of loans to co-exist.
Contract Loan Program
A contract loan program can finance the cost associated with most purchase orders, subcontracts, and contracts. Proceeds can often be disbursed prior to the work commencing. If it’s used for a single subcontract or contract when all the expenses have been incurred prior to the buyer paying, it usually will not revolve. If it’s used for more than one subcontract or contract, or for subcontracts or contracts where purchaser pays prior to all the work being done, the line of credit might revolve.
What kind of loan is right for your small business? Getting the work capital you need to grow and expand your business sometimes just can’t happen without working capital lines. If your business has had a successful history, and you have assets to use as collateral, it can be very easy to get a healthy working capital line. The problem is when small businesses don’t have many assets or a strong record of success. Those small business owners might find it more difficult to secure a working capital line.
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