Even though the economy has most certainly improved since the great recession, many small business owners and contractors are finding it difficult to secure the financial resources they need to successfully grow their business, like Michael, a painting contractor.
Express Capital Funding knows how vital small business funding is to maximizing and realizing your business’s full potential, and there’s no better opportunity to demonstrate how such funding stimulates successful growth.
Dive further into how your Small Business can benefit from a working capital loan by speaking to an Express Capital representative. Connect with us and Speak to a rep >
Understanding Working Capital
Before explaining how working capital is advantageous to the success of your small business, it’s first best to break down what working capital is. This type of capital is the sum of your most current business assets subtracted from your current business liabilities. Inventory and accounts receivable are prime examples of assets while short-term debt and accounts payable are types of liabilities.
Another type of capital common to the business world is long-term capital, which is often needed for marketing and paying employees fair wages. “Working” is the type of capital required to grow short-term assets.
In the case of our painting contractor customer Micahel mentioned above, he only needed funding for a few months to cover the costs of painting schools. The main issue he ran into was financial institutions refusing to work with him because the long-term government payment cycles weren’t a good match for his short-term working capital needs.
How Much Do You Need?
Now that you understand a bit more about the different types of capital and their uses, you should determine how much funding your small business needs to grow. Ask for too little and you risk stifling your expansion, ask for too much and your risk your loan application being rejected, not to mention the fact that you look uneducated on just how well your business is doing.
Michael only needed enough to buy paint in bulk, a strategy that netted him a discount of anything between 20 and 30 percent.
Sit down and figure out how much inventory you have access to at any given time, the number of days your customers have to settle their accounts and the number of days you have to settle your accounts with your suppliers. Once you have this figure, it’s time to draft a projected income statement. This statement should list your projected accounts receivable, estimated accounts payable and your projected inventory.
Additionally, be sure you factor in your inventory turnover days, projected sales and your accounts receivable turnover timeframe. Don’t hesitate to reach out to one of our capital funding experts if you ever need help with this particular step.
What You Can Use Small Business Funding For
“Business expansion” is a rather broad term, one that means both everything and nothing. So you don’t risk mishandling and misusing your funds once you successfully receive them, you’ll want to learn some of the most common uses for expansion funding.
Your small business will have a better chance of growing into a large business if people realize your business exists and how your products or services can benefit them. Marketing and advertising are two solid uses for funding. Research effective and affordable social media and online marketing campaigns, and don’t forget more traditional advertising methods such as flyers and business cards.
Feel you’re ready to take your business on the road? If you have a brick-and-mortar location, you can use your funding to open a second location to make it more convenient for your customers to support your company or contracting business.
On a related note, you can invest in better technology for your current and new commercial locations. Staying on top of business technology trends is key to remaining relevant and taking advantage of new business/industry opportunities.
Rather than spend your loan, you can instead invest it in your business in the form of starting an emergency fund. You never know when disaster will strike, and any commercial insurance policies you have might not be enough to cover every instance. By having an umbrella fund for your business, you can experience peace of mind and feel ready to take on a sudden increase in rent, equipment breakdowns and higher inventory costs.
In Michael’s case, he used Express Capital’s 30-90 day working capital loan to buy up his painting materials at a discounted price, completing more than 10 draws on his line. This allowed him to take on even more projects and successfully expand his business outside of his home state of Arizona.
Sources of Funding
So you know what working capital is, have a general idea of how to figure out how much capital you need and some of the ways you can use that capital to put your small business on the fast track to growth. But how do you gain access to that capital, preferably in the form of quick business loans? Traditional banks are most certainly an option, but their requirements and restrictions might frustrate you more than anything else. Thankfully, there are several viable options for alternative lending.
There’s equipment financing and leasing, which you might prefer to buying your business equipment outright, something not every small business owner can easily afford. With this type of financing, you can have as many as five years to pay back your loan and have your application processed in two to four days.
Some of the more common uses for this type of lending include financing restaurant, construction, medical, technology and manufacturing equipment as well as software and commercial vehicles. There’s also equipment refinancing, which can prove to be a tremendous help if you need to reconsolidate a debt or buy new equipment for your business.
Working capital loans are designed to help you complete jobs, expand your commercial facilities, cover the cost of moving and have access to a short-term flow of capital. For example, Michael could use his funding to expand his painting services to include apartment buildings and homes. Your term lengths could be as many as 18 months, and you might actually be able to receive your cash on the same day as when you apply.
No matter the type of financing you and your business needs, it’s always in your best interest to understand how much you’ll pay for interest over the life of your loan. Also, be sure to ask if your interest rate will either increase or decrease as you pay off your loan.
With so many alternative lending options, it’s essential you make sure you choose the right one. Do your research, and don’t be afraid to reach out to a company to ask questions about the application process and their track record as well as request referrals so you can get a solid idea of what to expect before you agree to anything. Take your time when making a final decision, weigh the pros and cons and always go with your gut. Forewarned is most certainly forearmed in this case.
For even more expert information and tips on small business funding, and to learn more about how we were able to help Michael, Express Capital Funding is always here at your disposal. We welcome the opportunity to put our expertise and dedication to good use in helping your small business thrive and become a big business success.