What is a Working Capital Loan?

This credit limit is valid for 12 months, or however long your agreement states. Your business can borrow up to £50,000 at any time and repay it with no penalties. Just like an overdraft, you will be charged interest for the loan based on how much you have outstanding at any time. What is a merchant cash advance? A merchant cash advance is a type of short term loan available to businesses that use a card terminal for customer payments. Borrowing is repaid through customers’ card payments. Repayments are processed automatically working capital loan as the lender works directly with the card terminal provider. A merchant cash advance is generally quick to arrange and doesn’t require detailed credit checks. It is also very flexible as repayments vary according to the amount of cash received from your customers. A merchant cash advance is not be suitable for your business if you only process a limited number of card payments.

What are the main sources and costs of unsecured and secured short-term financing? 3. What are the main sources and costs of unsecured and secured short-term financing? How do firms raise the funding they need? They borrow money (debt), sell ownership shares (equity), and retain earnings (profits). The financial manager must assess all these sources and choose the one most likely to help maximize the firm’s value. Like expenses, borrowed funds can be divided into short- and long-term loans. A short-term loan comes due within one year; a long-term loan has a maturity greater than one year. Short-term financing is shown as a current liability on the balance sheet and is used to finance current assets and support operations. Short-term loans can be unsecured or secured. Unsecured loans are made on the basis of the firm’s creditworthiness and the lender’s previous experience with the firm. An unsecured borrower does not have to pledge specific assets as security.

Rapid business expansion requiring cash for new stock and payroll. A loan can be used to fund new stock and wages and then repaid once sales start coming in. Long delays between buying stock, paying wages and receiving cash from customers. Large seasonal fluctuations in sales. A loan can be used to help with wage costs during the quiet periods and then be repaid during the busy periods. Unexpected bills or expenses. Long customer payment terms or late paying customers. Covering losses - there is a significant risk that your business will be unable to repay the loans. Long-term borrowing - they are usually arranged over a short period like 12 months. Buying long-term expensive assets - it often makes sense to match the loan term to the useful life of the asset to spread the cost. What is a short-term loan? A short-term loan of 3-12 months might be a good option if you want a simple, fixed-term loan for your business.

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