When starting a business, capital is, with few exceptions, required. A business needs capital to purchase equipment and supplies. It also needs working capital to bridge the gap between when it needs to pay its bills and when customers pay their invoices.
So to meet these two common requirements for capital, businesses often utilize loans. These loans can be short term, such as to meet an extraordinary need to working capital for a few months, or they could be long term such as to finance a delivery vehicle purchase.
One type of loan that can be used to meet short term capital requirements is the instant decision loan. Sole proprietors, partnerships and individuals are most likely to employ this type of loan. The concept is that the lender informs the applicant very quickly as to whether or not they are approved for the loan.
Now the definition of 'instant' may differ between lenders. For example, one lender might utilize an immediate credit check and base their approval decision on the results. Another lender might wish to see additional documentation, such as evidence of assets and income that will or could be used in repayment of the loan.
Another common source of capital are self employed loans. This type of loan product is specifically designed for people who own their own businesses. For example, contractors might utilize this type of loan to purchase equipment or supplies to complete a job before the customer pays the invoice.
It is important for businesses to make their payments to their suppliers on time. Otherwise, suppliers may put the business on pre-payment only terms, meaning the business must pay in advance for all its purchases. Or it might give the business terms of due upon receipt.
Either way, these terms will only then increase the working capital needs of the business even further. Whereas if the business pays its bills on time to its suppliers, it might qualify for terms of 30 days or even 60 or 90 days. A positive cash flow can then occur, where the business receives payment from its customers before its bills are due to its suppliers.
Both self employed loans and instant decision loans can be secured or unsecured. Generally loans of this type that are unsecured will have a higher effective annual percentage rate than secured loans. The interest rate simply reflects the relative degree of risk to the lender.
Secured loans where the lender can secure a lien or interest on real property have a lower risk since the lender can then exercise its interest in the property if the borrow fails to repay the loan.
In conclusion, instant decision loans can be an option for immediate capital needs. For example, if a main supplier says it cannot ship any more product to the business until its previous invoice is paid, and the business isn't due to receive its payment from its customer for another 14 days, that presents an immediate capital need. And that type of loan product might be useful.
Moreover, self employed loans can provide capital to a business owner as well. If a new piece of manufacturing equipment needs to be purchased to meet increased customer demand and a lease is not feasible, then this type of loan product might meet the need.
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