Having working capital is critical to your business being able to stay active. However, not all companies can and do resort to working capital financing.
Anyone who owns a business knows that constant financial movement is required and sometimes needs money to capitalize. For this you can find short, medium and long term financing.
Working capital is nothing more than the result of the difference in cash you have in cash and the money you owe. This is the amount of money your business needs to function regularly.
Working capital financing will help you meet your needs and reorganize your cash flow. However, there is no use if you do not have good management of your business.
What are the guarantees for working capital financing?
Depending on the type of financing you need to provide collateral to the financial institution in order to be able to do so. There are several options that can be offered, such as:
- Machines and equipment
- Pledge of receivables
- Mercantile Pledge
- Limited Company Shares Pledge
- Pledge of actions
- Pledge of titles
- Credit pledge
- Credit Assignment
- Among others
Characteristics of long-term working capital financing
Long-term financing is debt that is longer than one year but usually ranges from 5 to 20 years. It enables you to leverage your business financially.
Several clauses are included in loan agreements, which specify some criteria regarding accounting records and reporting, general business maintenance by the borrower, and payment of taxes.
Long term loan agreements usually include certain restrictive clauses, imposing some operational and financial restrictions on the borrower. This is one way for him to beware of the risks.
Advantages of Working Capital Financing
There are several advantages of hiring a finance. One is that you do not have to prove the allocation of resources, you can use it for whatever you want.
The other advantage is that the way to contract working capital financing is very uncomplicated, that is, your credit can be approved simply and easily, without much paperwork.
The loan can have very flexible terms, which will be negotiated according to your need. The resource is released through checking account and can be withdrawn at any time.
Usually the financing has low interest because you offer collateral to the bank in return. This risks and risks can provide you with better rates and values.
When credit guarantees are mortgages, guarantors and promissory notes, interest will be higher.
How to finance working capital
Before you start looking for a loan you will need to know how much you need and when you will be able to repay all the debt. Try to use very realistic deadlines, given that unforeseen events happen.
Search across many different locations and know in detail the lines of credit, interest rates, payment methods, installment amount, and everything else you need to know.
From online simulations on the website of financial institutions. This will give you control and know what you will pay. Be aware of the value of the installment. You should have enough money to pay it all month.
Planning is necessary so that you can pay the installments on time, avoiding interest on interest, which can turn into a snowball, becoming increasingly difficult to maintain.
The limit you will have to fund will be set with respect to your company’s ability to pay.
Working capital financing is different from others in some factors such as terms, rates, taxation of taxes, guarantees, concentration of credit with customers, among others.
The longer your financing lasts, the higher the interest rates will be. This happens for the following factors:
- The expectation of higher future inflation rates;
- The bank’s preference for lending in shorter, more liquid periods
- Higher demand for long-term rather than short-term financing.
With longer maturities the bank will have a lower forecast regarding future rates and thus will have more risks of losing. In addition, longer maturities increase the risk of bad debt associated with financing.
So try to do it in the shortest possible time, as long as you don’t compromise your income and end up disrupting your budget.