What Are Working Capital Loans?
A working capital loan can be used when financing the day-to-day operations of a business, and to boost current assets such as accounts receivable, wages, and inventory. It creates a positive cash flow, making it possible to fund current operations and invest in future capital. As not all businesses garner constant revenue year-round, it is a short-term financing option that can be used to keep operations ongoing and maintain profits.
If this sounds like it could benefit your business growth and have a positive impact on your balance sheet, then read on for some key takeaways.
Why Is It Important For Your Business?
Taking on additional debt could be beneficial for the growth of your business if it helps negate current expenditure. Especially if your net working capital is lower due to seasonal changes or low periods of operation. These loans allows your business the flexibility to cover gaps in cash flow if payables are higher than receivables. As you actively source for permanent solutions to increase profits, working capital loans provides the additional time and resources.
When Do You Need Working Capital Loans?
1. Starting a New Business
When starting a new business, the saying “you need to spend money to make money” holds true. Businesses beginning with a negative working capital are especially in need of extra support. Growth and profit take time, and these loans can help maintain operations while you get your new business off the ground. It can act as a landing pad when business is slow.
However, newly established businesses carry a higher risk of failure and often face difficulties when raising funds from traditional banks. Poss Capital is here to bridge the financing gap by providing an alternative source of capital.
2. Seasonal Businesses
Seasonal cash flow is typical in many types of businesses. While most businesses have fixed assets throughout the year, seasonal ones often see a change in working capital cash flow. They require consistent capital to keep operations running and to maintain current assets during the slower seasons. Poss Capital offers access to Quik with fast, flexible loans with your choice of tenure. No early repayment fees enables you to use what you need and pay for just that.
3. Maintenance of Regular Operations
Maintaining day-to-day operations, especially when businesses need to maintain a good current ratio, can be funded by working capital loans. Calculate working capital through an operations balance sheet to assess if these loans can allow your business more current assets than liabilities to cover its debts.
Working Capital Loan Alternatives
1. Lines of Credit
Lines of credit provide an immediate cash flow that can help prevent a financial crisis. While this is convenient, it can be challenging to obtain if you do not have a high credit score or credit history, which can be difficult for newly established businesses. Lines of credit can also take weeks to be approved; time most businesses do not have.
2. Invoice Financing
When businesses sell goods or services to customers, they usually do so on credit. The business issues the buyer an invoice as an official notice for future payment, and they do not have to pay immediately. These invoices are typically issued by businesses engaged in a B2B model rather than in a B2C with retail customers.
Your business can also take on larger and more lucrative contracts without becoming too stretched. It provides immediate access to the cash from the invoices issued to the big corporations after jobs have been completed, rather than waiting for months to receive payment. As countries across the globe face further uncertainty, easier access to funding could make this a viable option.
Crowdfunding has become a popular way to obtain capital without having to go through the process of applying for loans or lines of credit. Though the idea of not needing to repay a loan is tempting, reaching a crowdfunding goal can be a long process, and there is no guarantee of ever reaching it.
Seize Growth Opportunities Without Stress
Working capital loans are just that effective if you want to start a new business or find that your small business requires financing during your off seasons. Calculate your working capital requirements and Get Quik with Poss today! Or contact us if you don’t know where to start.