Working capital is the life giving blood for a company. Without WC, a company’s operations could be grind to a halt. It is quite impossible to predict the expenses that a company might be incurred with. To meet unexpected expenditures, companies can avail their working capital in the form of loan from lending institutions. They may be required to provide collateral that’s worth the loan amount, to the lending institution. Collateral security can be of many types, such as fixed assets, real estate, inventory assets, etc.
This article gives some ideas on how to go about borrowing money from a lending institution, in order to maximize your working capital.
How to borrow money from a lender
- Visit a lending institution to find out the options to obtain a working capital loan. If possible, get an appointment to meet with the officer in charge, and discuss your preferences and plans in person. Be sure of the type of collateral you have to offer to the lender, and discuss that too. You can offer real estate, account receivable, or business assets, as collateral.
- You might be asked to write an application. Fill out the application form upon request. You can ask for a memo that details the structure of the loan.
- If you have a positive financial report, show it as proof of your credibility. You can include financial information of the past three years: personal financial statements, personal tax returns and business tax returns.
- Provide information that supports your collateral. If you are offering account receivable as collateral, make sure that you submit a copy of the account receivable aging. For real estate as collateral, a copy of the lease agreement would do. The lending institutions use this information to determine whether you are qualified for the loan.
- Having received approval for the loan, you can sign necessary documents which include loan agreement, personal guarantee, mortgage and a note. The loan becomes active once the documentation is over.
- You can borrow the money as per the requirements. Clarify with the lender how you are going to advance the funds.
Most of the lending institutions will evaluate your borrowing history as part of qualification for the working capital loan. An unimpressive borrowing history will almost surely set you back a few paces.
Always make sure that the money is paid back in time. This will surely increase your credibility and chances of processing your required loan easily in the future.