Choosing the right bank for working capital loans or a line of credit is a task that requires understanding the needs of your business and matching those needs for working capital to what different banks have to offer. To that end, it is important to determine just how you plan on managing that working capital line to best effect. At the same time, understanding all the terms and conditions that apply to the credit line or working capital loan offered by a given bank is essential if you want to create the most beneficial working relationship possible.
Begin your quest for the best bank for working capital by defining the reasons why you need this type of financial support. If cash flow is slower than you need, a working capital line of credit can help you get the funds needed now for the business operation, and retire the balance as customers remit payments. If the idea is to get through a slow season, the goal is to get a line of credit that can sustain the business for several months at a time before settling that balance. Knowing how the working capital loan or credit line will be used makes it much easier to focus on banks that offer plans that meet your needs.
As you consider each bank for working capital loans or credit lines, look closely at the rate of interest that is provided with the financing. At the same time, look beyond the rate itself and make sure you understand how that rate is applied. Some institutions use a 360 day year to calculate interest on outstanding balances, while others use a 365 day year as the basis. Depending on the total amount of the loan, or how much of the credit line balance is carried from one billing cycle to the next, the difference can be significant.
It is also important to look closely at both secured and unsecured options when it comes to bank for working capital programs. A secured program means that collateral is required for the loan or credit line, and the value of that asset will determine how the amount of money that is extended as part of the deal. With an unsecured loan or line of credit, factors such as past credit history and the outlook for your business will also figure heavily in the amount of credit or the total loan amount you can command.
Compare offers from different banks before making a final decision. The idea is to choose the best bank for working capital based on the attractiveness of the terms, the rate of interest and how it is applied, and how effectively a particular plan meet the needs of your business. Taking the time to evaluate each bank for working capital options in this manner means that there are no unpleasant surprises later on, and the relationship between you and the bank is likely to be mutually beneficial and long-lasting.