How Useful Is A Working Capital?
There are many different reasons why business organizations are applying for loans like for instance, some do it in order to help them facilitate a smooth operation of their organization while others get such to expand the reach of their operations. This only means that the loans are going to be used to cover day to day activities which is known otherwise as working capital loan.
As every business organization is incurring expenses to be able to perform its operation activities on a daily basis, it’s a loan being used in covering this part of the business. Working capital loan can’t and shouldn’t be utilized for investment purposes such as investing in marketable securities, fixed assets or any similar venture whose main objective is advance overall investment portfolio of business that’s in question according to MAS guidelines and regulations.
With regards to WCL on the other hand, there are actually several aspects that ought to be taken into consideration and some of these are:
Insufficient revenue – the main concept behind this loan is informed by the fact that most of the time, business organizations may not be in the position to generate enough revenues to meet their operational costs on following months.
A quick example for this scenario is when one company can generate up to 15,000 dollars of monthly revenue but their monthly expense for their operation reaches at least 20,000 dollars. In this case, the company can’t cater for the cost of their operational expense from its monthly revenue alone. Simply put, this is illustrating the real importance of acquiring WCL in facilitating smooth running of the company.
Cover fixed costs – there are some aspects that are considered operation when it comes to overall functioning of organization and with this in mind, can be covered by WCL. These aspects may consist of wages and accounts payable among others. The payments of employee wages are an extremely important aspect because this determines the motivational level of employees.
There are other companies that are resorting to cutting employee’s salaries when they don’t have enough cash flow to cover the wages of their workers. This scenario can be bad for the business as the employee’s motivations would fall and good people in the firm might even decide to quit. The company is recommended to apply for working capital loan in these situations.
Other expenses – advertising is a key component of marketing strategy that determines the overall market performance of the company. By funding this business aspect, working capital loans plays an integral role in improving the continuity, sustainability and overall performance of the business.
Attributed by: http://www.aggietha.com/find-your-dream-job-in-4-easy-steps/