Working capital is the money you use to manage your day-to-day operations. Small businesses sometimes need loans to meet their daily operations needs until their earning assets are sufficient to cover their working capital needs. Banks sometimes loan short-term money to small businesses to enable them to get off the ground and grow. As the business grows and their own assets enable them to earn money, they can repay the working capital loan to the bank. Working capital loans may have higher interest rates than, for example, real estate loans since banks consider them riskier.
Loans can be made using accounts receivable or inventory as collateral. Borrowing money is expensive for a company and raises its risk.
– MERCY AYIRA
Some small businesses are seasonal in nature, particularly retail businesses.
