The working capital loan is a short-term loan from a few thousand to several tens of thousands of euros, which is intended for companies to increase their turnover. Banks offer such a working capital financing loan to companies that have a positive credit history and who themselves provide at least 20% of their planned spending to generate this increased turnover.
Increase their turnover during holidays
Creditors often offer this credit to small and well-established companies to increase their turnover during holidays or other periods when the company’s output is planned to increase, but with daily income the company is not able to cover this turnover.
A working capital loan is usually used when a company wants to expand its production or the volume of production turnover, but money is not enough to buy the necessary goods or services in the company account.
Taking a competitive loan
So here’s the credit for working capital is tied to the bank account of the company and can be used as much as needed, as it often happens that planning the amount of goods sold is not exactly possible and therefore taking a competitive loan amount would not be wise but attracting a loan You can use it on your account as much as you need for a credit card.
And after the loan has been used, it can be repaid within 1-3 years, but usually it is done immediately after the goods or services taken on the credit are resold and the money is recovered and additional profits are received, which can be to repay the lender and still pay the loan interest.
If we talk about the interest rate on the loan then it is usually between 5 and 15%, and usually the average rate is around 8%, which means that it is not the most advantageous loan and the fact that the credit will also cost you at least a few hundred Euros, and usually lenders require a minimum of 150 Euro minimum for this credit. And the additional costs are also related to loan restructuring, penalty interest or various letters on late loan payments.
This credit can be beneficial
All of this means that a company wishing to take out a loan to increase its turnover needs at least a 10% return on the goods taken out of the loan, so that the company can balance its balance sheet, as any lower profit will only lead to a negative balance when the loan will be repaid. But if the profit is over 10% of each product, then this credit can be beneficial because it allows you to buy a lot more goods and thus sell a lot more, even though the company itself does not have enough money to buy these goods in time.
But any entrepreneur has to be careful and especially when it comes to loans, because often the place is a collateral or a personal guarantee, which is not as profitable as it sounds, because if the company goes bankrupt then the credit you will have to pay From Your Personal Money!