At times, a small business runs into a cash flow crunch and funding is needed quickly. This can happen when funding for payroll is needed because a job or payment is taking longer than anticipated. A business may be surprised that getting a short-term loan will lead to a better operating company, which leads it its success.
While in a financial pinch, the first place we usually go is the bank. If you have experienced going to the bank for a loan, you know that the credit process often takes several weeks just to get a decision.
Cash flow for your business is about timing and getting money at the right time when you need it. That timing and immediate access of funds can be vital for the success of a small business.
Here is where a loan can help leverage the business and how to improve cash flow.
*This is a real person who came to Express Capital with his situation. Our client took on a large job for his painting company even when he was in a cash flow pinch.
Doug needed a quick loan to fund his large commercial apartment job which was almost complete. It would take 60 to 90 days to get paid on. He had a line of credit with his bank that was closed a few years ago. Despite having excellent credit Doug was unable to get the bank to re-establish his line due to their stringent credit criteria.
Doug ends up bypassing the bank and utilizing a working capital loan as a line of credit. He used the funds for purchasing paint and floating payroll for his jobs.
By obtaining a working capital loan, he was able to complete the job, cover payroll and buy some time to pay off the loan. Once the payment from the customer was received he was then able to pay off the loan. Many companies prosper by looking at ways in which they can take on larger jobs.
Having a line of credit with a direct lender who can fund money into their account immediately makes this possible. Doug has built a relationship with Express Capital over the years and has increased his borrowing capability from $25,000 to $100,00. In addition, by getting this loan, it has enabled him to increase his business revenue significantly and develop relationships which have created new and much larger jobs.
APPLYING LESSONS OUTWARD
Like Doug, a Contractor’s small business can benefit from a flexible working capital loan. Here are a few things to consider to help leverage your funds.
Are you able to take on new jobs?
At times, a contractor is unable to take on new client opportunities due to lack of cash flow, crew, or materials. If your answer was no, it will be in your best interest to consider obtaining a working capital loan that can bridge that financial gap and help expand your business.
Do you have a pipeline of customers waiting for you to start their job?
Customers who are waiting for you to start their project is a good problem to have. Except for the person waiting on you. Your customers are key to receiving referrals and even being hired again.
To avoid this issue, taking on a short-term loan will allow you to hire additional crews to start on the projects promised in a timely manner, leaving your business open to additional work.
Is a job paused because additional materials are needed?
Money can be wasted due to lack of material to continue the job. Obviously, the faster the project is complete the sooner you will get paid. Hundreds of small business contractors have borrowed money to pay for materials. This has enabled them to get the job done on schedule, which the customer appreciates. Without financing to help, you are hurting your business.
Do you work with companies that pay on net 30, net 60 or even net 90 day terms?
At times, waiting for payment can put a damper in your cash flow. In some cases, it is having no money earmarked for that particular project, which leaves you to evaluate spending. Knowing your cash flow is a good practice when bidding on a job. Must first know the difference between profit and cash flow.
Investopedia has the perfect description, "Cash flow is the inflow and outflow of money from a business. It is necessary for daily operations, taxes, purchasing inventory, and paying employees and operating costs. Profit is the surplus after all expenses are deducted from revenue."
In this case, waiting on payment or late payments from a customer, it is smart to consider financing for just the amount you need until the payment comes in. The perfect solution for funding would be a short-term loan with no prepayment penalties.
If you answered no to any of the above questions it is time to get a working capital loan. Learning from Doug, an Express Capital customer, you may find the right solution for your business challenges. This will enable you to take on new customers, get material needed and start those jobs in the pipeline. Starting your customer’s job on-time will make them happy. Happy customers mean more referrals.