Your competitors are probably using some sort of working capital loan to help them succeed, so it makes sense that you're considering the same.
Success takes more than just having a plan, even more than simple hard work and dedication. It takes financial agility, accountability and power to achieve your goals.
Complex business cash flow problems have a relatively simple solution: getting a short term business loan.
A working capital is a specific type of borrowing, contrasted with general small business loans, factoring or credit cards. There are many benefits of leveraging these funding options.
For example, a loan in this category can be approved very quickly in many circumstances. In addition, it often won't require an extensive business plan or complicated application process that most loans mandate.
Lenders love when a business owner is very detailed about how they plan to use the money.
If you want to prepare for success in a quick application process, take a look at these examples of common ways people use their borrowed capital. Chances are that you can benefit from at least one category.
1. Bridge Payment Delays
Some of your business partners might cut you a little slack if you back up on payments for a few weeks. That's especially true of industry peers: companies about your size and age.
Unfortunately for charismatic business leaders, big organizations like credit card processors, utility providers or insurance companies tend to go by the book. That means you're looking at mounds of fees or extraordinarily high interest rates when you're late on bills.
You need a way to bridge payment delays without incurring unnecessary costs. While nobody likes to borrow money, many successful businesses do the math and realize a working capital loan is actually cheaper than paying those fees and credit card interest rates.
2. Pay Your People
No business owner likes to see that payroll number show up in the books. As your business grows, payroll costs can inflate faster than anything else.
Even when you've got a great team that provides excellent value, it's possible that you're not seeing an immediate return. If revenue lags, use working capital to bridge payroll gaps. Retain the people who bring the money back into your organization.
3. Stock Up
If you're a retail operation, you know that inventory is a liability. There are times you need to overstock. It includes rolling out a new product, going into a busy season or buying in bulk for a deep discount.
Promotions and sales are also a good time to consider expanding your capital resources. Make sure that your merchandise liability doesn't threaten the other aspects of your business.
Here is an example of a painting contractor who uses her working capital loan to buy material.
Stacy, a painting contractor, uses her funding often for just a few weeks. The loan is used for startup projects and to buy materials. Upon completion of her project she pays off the loan. Stacy loves our program because there is no long-term debt or high interest costs.
By revolving the funding monthly, she saves a tremendous amount of interest.
4. Weather the Storm
Many businesses depend on busy seasons to take them through the slow months:
- Building contractors
- Real estate agencies
- Equipment or vehicle rental centers
- Outdoor recreation facilities
- Residential contractors
Whether you're directly involved in one of these industries or you provide services for them, you feel the crunch during the low-revenue times of year.
A working capital loan is the financial equivalent of saving for a rainy day. Work the cost of the loan into your bookkeeping, and you don't have to worry about stockpiling resources for the times when pickings are slim.
Our customer has weathered the storm in his contracting business.
Terry operates in Minnesota where temperatures in the winter get well below 0 degrees. His recycling business revenues tend to dip in the winter months as it becomes difficult to deploy and pickup containers with his customers.
With business being a little slower he uses working capital funding to maintain his business until things pick up. Terry supplements his income by taking on winter projects such as Christmas light decorating.
5. Hire Quality Labor
One of the easiest ways to get ahead in any business is to empower your team. This can mean, hiring experts in your field to padding the roster for busy seasons.
There's a universal truth of doing business when it comes to human resources: you get out what you put in. To get the best candidate for a position, you'll need to be able to offer a competitive compensation package.
Use a working capital loan to enhance employee benefits, offer better pay or improve the workplace environment.
6. Operate Smoothly
Telling a lender you want to operate more efficiently is probably too general of a statement. Make it specific to your own business.
Before you apply for a loan, identify the weak points in your business. These are usually the processes, bottlenecks or inefficient tools that cause chaos or require workarounds on a regular basis.
Use a loan to improve your business tools and educate your team on how to avoid costly problems.
Greg is a mechanical contractor that specializes in concrete and municipal jobs that require insulation of plumbing and HVAC. He utilizes working capital funding, similar to a line of credit, and often times only uses a fraction of the amount he is approved for.
Greg typically pays off the loan within 30-60 days. He utilizes the funds for short term operating expenses and pays it off quickly.
7. Marketing and Advertising
Marketing and advertising are two of the most popular reasons small businesses apply for loans. The extra budget allows the freedom to try out new types of tactics and tools, such as social media marketing, event sponsorship, community outreach or publishing.
You can activate your strategic level by hiring analysts, outsourcing to an advisor or simply acquiring a professional analysis tool to do it yourself. That way, you cover the two most important parts of developing a marketing process.
Bonus 1: Expand Your Territory
Here's an eighth way to use a working capital loan, specifically for businesses taking a major step in their development. Before you go through lengthy loan processes for financing new facilities or acquiring equipment, try using working capital to test the waters.
You can soften a market, establish brand presence or do revenue-generating research with a simple loan. The data you gather from your successes will only strengthen your major loan application.
Our client has borrowed from us several times. He paints schools, and once awarded a job, he buys paint in bulk and receives a 20-25% discount for buying a large amount.
He typically uses the funding for a few months until the job is complete. The client then pays off the loan at a highly discounted cost which is less than the savings he gets for the paint.
We have done 10+ deals for the customer and it has helped him expand his business to states outside of just Arizona, which is where he resides.
Taking advantage of a chance is more than just being lucky. Understand the ins and outs of working capital, and you're in a good position to act when opportunity strikes.
The right loan increases the amount of cash you have to act on your best decisions, so establish a relationship with a reliable lender. Getting to know a financial company's process and getting a dedicated contact simplifies any application process.
Make sure you're ready to quickly obtain funds to:
- Close once-in-a-lifetime deals
- Service career-making clients
- Upgrade equipment to obtain tax breaks
One final benefit is that taking out these loans and paying them off regularly is a well-established method to nurture business credit: a type of capital in and of itself.
The better your credit, the more likely you are to get approved for major investments when it comes time to expand.
Most small businesses aren't adequately leveraged, so you might be surprised at how soon you could be setting yourself up for success. If any of these above items sound familiar, apply for a working capital loan today.
If a simple and quick application process is something that works for you, contact an Express Capital specialist to discuss your business's working capital needs.