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Working business loan – what is it and what is it?

Ways to obtain additional cash for entrepreneurs is not a measure. The most popular are mortgage loans, investment loans, leasing and factoring. They allow you to maintain financial stability – although sometimes there is also a remedy for all payment problems and invoices with deferred repayment date. However, business owners should additionally be interested in one more way of crediting the investment. Namely, a revolving loan. What is this form of support?

A Business loan – a chance or a curse?  

The report of the National Guarantee Fund “Financing activities by SMEs in Poland” shows that over 20 percent. small and medium-sized enterprises in the country finance their expenses from bank loans. Most often, micro-enterprises use credit support only on the occasion of investments or for securing their current expenses.  

It is true, because popular “turnovers”, or revolving loans, are one of the most convenient forms of financing current operations of the company. They can be used for any purpose: purchase of raw materials and products, settlement of liabilities, and even refinancing of debt in another bank. Read also:   Refinancing loan – what is it and when is it worth taking?   Active entrepreneurs use banking “turn-ups” also for the emerging business opportunities , but also as an intervention element in the event of problems with liquidity of expenses.

Business loan – for whom?  

As the timing of obtaining a working capital loan shows, it is not so easy … At the start, companies with a regular solvency problem can say goodbye to this solution. Such institutions, in order to be able to “fight” for co-financing at all, must have adequate security, eg real estate. In practice, they can not be premises that are usually rented by small entrepreneurs. In this way, the bank will either refuse to grant a working loan or will definitely increase its costs. What for start-ups, small business or sole proprietorship can be unworkable …  

Therefore, a working capital loan is a good solution for experienced entrepreneurs – because despite the fact that it is a product that can be selected from many bank offers, it is quite expensive. The interest rate varies from 8 to even a dozen or so percent per annum . The commission, on the other hand, remains at 0.3 to 5 percent. the entirety of the liability. To this should be added:  

  • The fee for processing the application,
  • Costs related to an increase of the credit limit or a commission for unused funds,
  • Interest for the amount paid,  
  • Additional security tailored to the type of business, e.g. mortgage, assignment or pledge.

How it works?  

Bank functions quite simply. It’s about determining the company’s credit account, a credit limit that will work, for example in a situation of temporary financial problems. Then the funds used will first be covered by future income on the account. What is important, a bank loan with a bank account requires each time a new agreement with the bank is signed. Thanks to the fact that it is a short-term commitment – taken for a period of one to three years, it is very often possible to negotiate the optimal amount necessary to meet individual needs. At times, it may even “accept the features of a revolving loan.   

A working loan can be paid out in several ways:  

  • In the whole amount or lots  
  • In the form of a revolving credit – it enables repayment of debt and automatic activation of the credit limit up to the amount set.

A better solution for small businesses? 

The solution for a typical working capital loan is a loan secured by a de minimis guarantee . Their only difference is the fact that it is paid by Bank Gospodarstwa Krajowego as part of the government program “Supporting entrepreneurship with the use of sureties and guarantees”. In this case, if the company does not settle the payment in time, BGK will withdraw the borrower from the bank. Which means that at a later stage financial settlements will be carried out between the BGK-guaranter and the entrepreneur.  

To get it, it is necessary, as with any credit – credit that has the power to her, but the establishment and corporate accounts. And this may involve additional costs for running the account.

Diversified offer of de minimis loans  

What is important, revolving loans with a de minimis guarantee are offered only to those banks that have signed a cooperation agreement with BGK. The maximum number of entrepreneurs is PLN 3.5 million, for up to 27 months. How to do it? All you need to do is submit a loan application to the bank and attach a guarantee statement to it.  

In summary, de minimis loan is a good solution for young companies looking for development capital and those who do not want to spend large sums on securing debt at the same time. It is also an optimal option for small businesses that have no chance of getting a working capital loan in the traditional form.

Working capital loan and factoring  

Factoring is often called soft debt recovery involving the collection of cash for business development from a factor. How? By virtue of the signed contract, the factorer takes over all outstanding receivables of the factoring (company) customers. Thanks to this factoring does not require additional security – because they are already unpaid obligations.  

That is why it is a good option for companies that:  

  • They issue invoices with deferred repayment date,  
  • They have a short internship,   little experience and credit history,  
  • They can not afford to secure a loan. In this case, factoring is secured by irregular invoices of the factoring agent!  

What to choose? A revolving loan or factoring? By choosing a “turnover” the borrower can count on a cheaper loan, which is associated with the lack of additional services. Factoring is focused on long-term cooperation. It is not only managing customer receivables, but monitoring of finances or managing customer accounts. Here are the pros and cons:  

  • Both services improve the company’s image  
  • In factoring is a contractor who is in arrears with payments is responsible for repayment of debt. However, in the working credit it is the borrower!  
  • Factoring offers many additional services and more support when issuing invoices. In turn, a “turnover” is a typically financial transaction and requires additional security.  

What decision?  

Bank loans are not a cheap source of financing – but sometimes they prove inevitable! In such a situation, it is worth getting a detailed analysis of current loan offers, which will help to minimize the risk related to the stability of the company. Regardless of whether the best option is a working capital loan, factoring or de minimis loan, you should always pay attention to: interest rate, commission amount and crediting time! Thanks to this, the reasonable use of these instruments will not prove to be a treacherous fatomorgan!


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