The Importance Of Applying For A Working Capital
Some organizations apply for loans in an effort to help them in expanding their reach of operations while some other businesses apply for loans in order to facilitate a smooth operation of their organization. Well, this simply means that the loans will be used in covering day to day activities which is otherwise known 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. As much as possible, working capital loans shouldn’t be utilized for investment purposes just like investing in marketable securities, fixed assets or any similar venture whose main goal is to advance the overall investment portfolio of business 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 primary concept behind this loan is informed by the fact that business organizations most of the time may not be in a position to generate enough revenues to meet their operational costs for the following months.
As an example, one company can earn monthly revenue of 15,000 dollars while their monthly expenses for their operation is peaking at 20,000 dollars. The company in this case can’t cater for 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 several aspects that are deemed operation with regards overall functioning of organization and having said that, may be covered by WCL. These aspects might consist of wages and accounts payable among others. What helps in determining the motivational level of employees is the amount of their wages, which makes this as an important aspect for any business.
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. In this scenario, it may create a negative effect on the overall performance of the company because the motivation of employees will fall and good people may even decide to quit their job. The company is recommended to apply for working capital loan in these situations.
Other expenses – one very important component in determining the overall market performance of the company is advertising. As a matter of fact, by being able to fund this aspect of the business, the working capital loan plays a crucial role in terms of improving continuity, sustainability and overall performance of the business.
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