In commercial financing, a distinction is made between working capital loans and investment loans. While the latter are used to finance fixed assets, companies use working capital to finance their current assets.
- Working capital loans serve to bridge the gap between goods purchase and goods sales.
- The allocation is usually made as current account credit.
- Regional promotional banks provide companies with low-interest loans or guarantees.
- P2P platforms provide loans between investors and borrowers as a bank alternative.
- Alternative corporate finance in comparison
What is a working capital loan?
Working capital loans are usually lower than investment loans. They serve, for example, to bridge the gap between the purchase of goods or raw materials and the sale of goods. The company needs its liquid funds to pay for the purchase of goods. It will take some time to sell the finished products. This period is bridged by the company financially with the working capital loan. The repayment of the loan is made by the sales proceeds of the goods.
Working capital loans are usually provided as current account overdrafts on the current business account. These are short-term loans that usually take only a few weeks or months to complete. Working capital loans are usually not tied to a purpose. It’s about keeping the day-to-day business running. This includes the financing of
- Goods and supplies
- personnel costs
- rental fee
- raw materials
- Financing of claims
- Cost of marketing activities
- consulting fees
Further financing offers especially for companies can be found at Cimptons, the finance portal for medium-sized companies:
- Corporate loans up to 750,000 USD
- Commercial real estate financing
- Finance or lease machinery and vehicles
What are the advantages of a working capital loan?
In principle, working capital loans are rather clear in terms of maturity. The entreprenUSD can put all the liquid assets into the purchase of goods, thereby increasing sales and profits, without having to limit other expenses. Especially for seasonal businesses, a working capital loan is a real solution. For example, a piece of equipment can bridge the summer gap and will be repaid if the business starts to recover in the fall.
Young entreprenUSDs who can not grant a land charge or who do not own machinery as collateral have the option of providing security through a regional guarantee bank.
What are the disadvantages of a working capital loan?
From a business perspective, the only downside is that interest on a working capital loan is charged. However, some institutions are not squeamish in the interest comparison. However, the provision of collateral is not uncommon and therefore not necessarily a disadvantage.
For whom are working capital loans suitable?
This question can be answered across all sectors. Working capital loans are a solution for all companies that need to cover a longer period of time between purchasing goods and selling goods. However, they do not want to accept sales cuts caused by limited purchase of goods.
Who awards working capital loans?
Theoretically, any bank that works with corporate clients is eligible for a request. However, there are credit institutions, which tend to focus on working capital loans and others, which operate this business rather passively and only on request.
Worthwhile, in any case, are inquiries from the development banks of the federal states or the Intrasavings bank. Promotional banks offer the most varied forms of working capital loans, according to their needs. For example, KfW’s programs 037 and 047 cover the entire need for financing for a company. In addition, the special program “ERP Start-up Loan” is also available to young companies as a working capital loan.
An overview of the relevant banks can be found at the beginning of the guidebook.
P2P and crowd lending platforms as an alternative to banks
For some years now, the banks have been hit by an increasingly rough wind in the lending sector, sparked by the credit platforms or credit marketplaces that offer so-called P2P loans. These portals provide loans to the banks. P2P means peer-to-peer and “peer” in turn means “equal” in German. On the one hand are companies or individuals looking for a loan. On the other side are investors and investors who want to lend.