Interest Rates
Speaking of interest rates, many companies usually do not highlight their rates since the numbers do not help close the deal. Many times these loans are presented to clients in terms of the amount borrowed and the amount owed. For example, let’s say that you as a business owner need a working capital loan. You want to apply for $5k. To keep this illustration simple, let’s say the fee for the life of the loan is $500.
In total, you would pay back $5500, and that seems palatable in terms of up-front figures. It especially seems palatable for someone who isn’t going to take the traditional route to secure a loan. Now, here is where the news gets even better. Since you are a business owner, many companies are going to structure a working capital loan to be paid back according to your sales trends.
Minimum Threshold For Repayment
What this means is that they might take a percentage of your sales, without requiring a minimum monthly payment. However, you are likely to be given a minimum threshold to meet quarterly and annually. The company is going to expect the loan to be paid back in a timely manner.
Companies do often cut business owners some slack if their sales trends slow and they fail to meet the minimum threshold for a quarter or two. They will contact you, ask you for additional payment, etc., but they are unlikely to place you into the dreaded default category.
These loan payments, based on your sales trends, should be automatic and not necessarily in the monthly payment form. They might take the proceeds from each sale. When you take out one of these loans, the percentage is set by the company according to their terms and conditions, and that percentage never changes.
Terms And Conditions
Companies do, however, have different terms, so you want to shop around. Furthermore, available loans from each company can have different payback percentage rates, often stemming from the amount borrowed. For example, let’s say that you apply for that $5k loan. The company makes you sign a paper pledging to repay the loan with 15 percent of your sales. Now let’s say you take out the same loan from the same company, but you want to borrow $20k. The company might approve your loan based on larger sales trends, but they might ask for a larger percentage of your net sales.
FAQ: Working Capital Loans
1. How do you get approved for one of these loans?
Approval is based on your sales figures alone, and you meet identity verification and banking standards. As a business owner, you have the latter covered, but you are going to have to prove your business income. If you have the sales, getting approved for one of these loans is relatively easy.
2. There is a minimum quarterly and yearly threshold, but is there also a time limit on the loan in general?
Companies are typically rather lax about saying by what date the loan must be paid. They are more interested in getting a certain percentage of your sales, and they know the details are going to take care of themselves. That does not mean business owners do not default on these loans, but that is the way working capital loan companies operate. They are less strict than traditional banks and do not usually check your credit.
