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Working Capital Loans for Corporations: A Quick Guide

Many companies, large and small, rely on loans as a regular part of their operations. Where do businesses turn when they need a large, reliable injection of cash?

Posted: 27th October 2020 by Finance Monthly
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Some might believe that established businesses do not need financial aid, funding, or loans. The logic is those big companies are wealthy. It may be accurate, but owning stock or assets is not enough. A big company can sell items to inject some cash into their operations. It can apply for bank lines of credit. A working capital loan is the fastest way for a firm to keep things moving. Today, we will discuss this type of corporate loan. We will explain how it works and what corporations can access it.

What is a Working Capital Loan for Corporations?

Corporations use working capital loans to finance everyday operations. It is normal in the current economic landscape and the ongoing global health crisis. They could sell stock or get bank loans to fund investments. As many businesses know, this year was anything but ordinary when it came to daily operations. Even large firms need fast access to cash to pay debts, cover rent, pay employees, etc. A working capital loan is a financial instrument. It helps companies big and small to make it through periods of low business activity.

The definition of a working capital loan is simple. It represents the difference between your current assets and your liabilities. The resources can include accounts receivable, inventory, investment/stock portfolio, etc. The obligations can include owed payments to suppliers, debts, etc.

Most corporations receive unsecured business loans. It means that they are eligible for such funding without collateral. By comparison, small businesses and startups have to present guarantees. Corporations in need of a working capital loan can address a bank, governmental funding, and private lenders.

According to All Year Funding, alternative lenders offer loans to small and big companies alike. They do not push for perfect credit scores and collateral. In this context, startups and larger firms can access merchant cash advances. These types of business loans can quickly cover a company’s needs for money for daily operations. The advantage is that alternative lending works much faster than banks. Large food distributors, supermarket chains, and construction companies have access to loans in a couple of days. The limitation of such a loan is the payment threshold. A company needing a few million dollars should go to another type of lender.

Corporations use working capital loans to finance everyday operations.

Where Can You Secure Corporate Funding for Working Needs?

When it comes to corporate funding, your best bet is the Small Business Administration. Do not let the name fool you. The entity allows you access to loans as high as $5 million. It depends on your working capital needs. Here are some popular SBA working capital loans for corporations:

  • Standard 7(a) Loans. A company can get up to $5 million. The maximum guarantee from the SBA for loans up to $150,000 is 85%.
  • Working CAPlines. They are revolving lines of credit to finance seasonal or short-term needs.
  • International Trade Loans. The maximum SBA guarantee is 90%. The loan works best for companies that need funds for global exports. The maximum loan amount is $5 million.
  • Export Working Capital. It provides companies with additional funding to increase domestic export sales. The maximum SBA guarantee is 90%, and the maximum loan amount is $5 million.

Small businesses have their SBA microloans and 7(a) working capital loans to access. They also have private lenders to rely on in emergencies. In comparison, corporations need to meet rigid criteria to access SBA funding. A high credit score and no history of bankruptcy in the past three years are mandatory.

The Pros and Cons of Working Capital Loans for Corporations

Before you jump at the opportunity of accessing working funds through a bank, the SBA, or private lenders, you need to know the pros and cons of this type of loan.

Pros of Working Capital Loans

  • It allows businesses to cover all gaps in the working capital expenditures. This way, corporations can keep employees on the roll, pay suppliers, deliver goods, and expand.
  • A working capital loan is among the fastest types of loans big businesses can access.
  • It does not require any equity transactions. It means that the owners of the company still have full control over their business.
  • It is among the most popular business loans in the current health crisis; corporations had to face economic instability and adjust to the present challenges.
  • Companies usually take such loans to make ends meet when cyclic businesses are slow. By the time the trade booms again, they already have paid the loan.
  • Some types of working capital loans are unsecured, removing the collateral obligation stress.


Cons of Working Capital Loans

  • Working capital loans’ interest rates depend on the lender. Medium and large businesses work with interest rates between 6% and 16%.
  • Missed payments on such a loan can lead to disruptions in the company’s credit score.
  • Most lenders agree to a loan period of 6-12 months.

Bottom Line

The global economy is taking some hits as of late, and they do not spare medium and large corporations either. Whether your lenders are banks, the SBA programs, or private financial entities, you need to make sure you meet their criteria. Working capital loans are great solutions to keep employees. They allow you to run the business through all your facilities and boost marketing efforts. You have to pick the best conditions for your company and make sure you pay on time.

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