Are Working Capital Loans Worth The High Interest Rate?

January 05,2013

Working Capital loans are one of the easiest and fastest ways to obtain the cash need to grow your business to the next level.

Are Working Capital Loans Worth The High Interest Rate?

Almost daily Abba Leasing receives telephone call asking about out working capital program and if they will work for their particular business. As with any other type of lending they have their place in the market if the funds are

properly utilized.

I'll be the first to tell you right up front they come with a hefty interest rate when compared to a bank signature loan. The signature loans is in most cases the best choice for someone with stellar credit since they will be offered the lowest rate. Folks, it's all about risk based pricing.

We don't apologize for the high rates associated with working capital loans, simply because Abba didn't cerate the customers credit profile, the customer did. That being said, there definitely is a place for this type of loan for all

types of credit.

Tool dealers utilize working capital loans to buy tools at trade shows are in most cases choose a short term such as 3 “ 6 months which obviously does decrease the amount of interest paid. One very interesting aspect is many of

the programs available will approve loans for customers with FICO scores as low as 500.

Just about any retail establishment qualifies for a working capital loan with minimal documentation required. Most programs offer bank only programs which means if the business doesn't accept credit cards they would still qualify as long as there is sufficient cash flow to service the debt.

It's common practice for the lender to ask for a completed and signed credit application as well as the last three months bank statements and merchant credit card statements if the business accepts credit cards.

Be very cautious when a lender immediately demands that you switch credit card processing companies. While that is

common practice for many lenders, there are numerous programs available where switching processors is not a

requirement for loan approval.

Working capital loans usually range from $5,000.00 - $250,000 with terms from 3 to 18 months. These loans are in most cases repaid on a daily basis by ACH. Repayment is based on a percentage of you daily balance and are fixed for the duration of the loan. We highly suggest that you request full disclosure of funds, stating not only what your daily payment is but any other charges that may be included.

Your cost with be in the vicinity of $2,000 - $4,000 for every $10,000 you borrow with this type of a loan. Fund should always be use for the purchase of equipment or good that will increase revenue for the business.

Using the funds from this type of loan just to have additional working capital or to take a vacation, would be a very poor use of the proceeds. I would also be prudent to mention at this point that most businesses that utilize this type of loan will tend to renew the loan when it is paid down to 50%.

We have seen many sign companies use this quite effectively when purchasing custom digital signs that may take anywhere from two to four months to be completed or shipped from another country.

Hopefully this overview with give you some idea of what to expect and what to be on the lookout for when working with this type of a lender whether it be for a working capital loan or any other loan types.

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Abba Equipment Leasing

352-688-7588

Richard Reichmann

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