Just like tens of thousands of businesses nationwide – especially small and mid-sized companies – you’ve decided to submit an application for a working capital business loan, possibly from us here at ViewRidge Funding. Before you decide to present your credit application, we advise that you keep these three points in mind to take full advantage of your working capital loan and obtain the most value for the very least cost (with little to no stress as well!).
1. Don’t borrow more than you need
In the event that you’ve been declined for a typical bank loan you probably will feel driven to borrow as “much as you can get” and “strike while the iron is hot”. In our practical experience dealing with many business owners nationwide, this can be an extremely counterproductive move – which explains why we advise our clients not to borrow more than you need.
That’s because merely borrowing more than you need creates two issues. First, your repayment amount will be much higher than it has to be. This may not be an issue today, but it could turn out to be a problem a couple of months from today if your cash flow slows down.
Second, unless you have successfully utilized your working capital business loan (e.g. purchased equipment, hired new employees, expansion, etc.), the extra funds will probably be “dead money” sitting in your bank account. Years ago this wasn’t such an issue. However, today business savings accounts pay little to no interest – and what they do provide is below the rate of inflation. Therefore, you’ll be losing money by keeping it in your bank account.
- Ensure that repayment is automatic.
Managing a business isn’t just working hard: it’s also long work, in the sense that the hours are long, and also there’s just no such thing as stillness. Just when you have a few free moments of blissful peace, an urgent issue arises or you have to come up with a creative solution to boost sales.
The reason we are talking about this is that in most hectic and ultra-hectic business environments, it’s arguably a foregone conclusion – that loan repayments may be be late or forgotten. During business hours, there are always to do’s that get neglected – for example returning a phone call, contacting a supplier, or yes, you guessed it – taking care of the working capital business loan payment.
The solution to prevent this from occurring is straightforward, and needs zero alert systems: have your loan automatically paid back each day, directly from your account. This way, you’ll never miss making a payment. In fact, you don’t have to give thought to payment. That’s a load off your mind because while it’s fine sometimes to forget to return an e-mail or even call a supplier, it’s probably not recommended that you miss a loan repayment.
2. Ensure that you can repay your loan early
Even if you borrow a sum that matches rather than exceeds your expected needs (per point #1 above), you might find yourself in a position to pay back your loan ahead of schedule. For instance, you may have managed to obtain a substantial discount on inventory because of your improved purchasing power, or rather than employing four new staff members, you discovered that three would do for now.
Regardless of the reason(s), make sure that you can indeed pay back your working capital business loan ahead of time if you are in a position to do so. Also, BEFORE you sign the loan agreement make sure that there are no pre-payment penalties and if there are negotiate so that you can pay off early. This should put you on stable financial footing, and if you pay off early leave you in good standing to obtain future capital.
3. The Bottom Line
Applying for a working capital business loan can be the most intelligent economic decision you make all year. However, to take full advantage of your investment and also get the most for the least, we encourage you always to keep the above three tips in mind.