Business owners use the term“working capital” to refer to their ability to meet typical expenses on a daily basis. In the technical sense, business analysts subtract current liabilities from assets to derive a company’s net working capital. This figure may be able to offer a picture of the company’s health, but it really doesn’t tell the whole story. For example, some companies may look great on paper, but they have limited opportunities to grow because they lack cash. Other businesses could have little working capital, but they have great potential for other reasons.
Situations like this happen because all of a company’s assets might not be in cash, so a businesscould look rich but still have trouble meeting payroll, running marketing campaigns or investing in other activities that can help them grow. In other cases, companies might possess valuable assets but have trouble coming up with the cash to handle an unexpected emergency. Startups might possess a great asset in their talent and entrepreneurial spirit, but they may not have big bank accounts. A working capital loan can help businesses manage their cash flow in order to sustain themselves and grow. See howyour business might be able to profit from this kind of loan below.
1. Take Advantage of a Chance to Grow Revenue
Most financial experts say the best use of business credit is to help companies grow their revenues. For example, you might own a busy, but tiny, cafe in a shopping center. You may have even noticed that some customers walk away when they don’t see any empty tables. If the business next store moves, you could have a chance to turn your tiny cafe into a bigger one. You could add more tables to increase revenue, but you’ll need cash to knock down walls, expand the kitchen, buy fixtures and hire more servers. A working capital loan gives you the ability to take advantage of new business opportunities.
2. Decrease Business Costs
Besides growing revenue, another way to increase profits is to decrease costs. If you manufacture products, you might get a chance to do so at a lower cost with more modern machines. You could also get an offer to purchase a larger order of supplies that comes with a bulk discount. If you can justify these purchases because they will help you lower your costs, you can justify taking out a working capital loan. Once you’ve used your loan to decrease costs, you should have more income to pay back the loan and experience additional profits in your business.
3. Weather Temporary Financial Difficulties
Most business owners agree that running a business is risky. While successful businesses do their best to manage these risks, sometimes the unexpected happens. If your business gets flooded or a critical machine breaks down, you’ll need money to repair damage or make payroll when your income gets interrupted. Enjoying access to a working capital loan can turn a difficult situation into a simple inconvenience. Without cash, this same difficulty might generate big losses or even cause you to lose your business. The sooner you can access the cash you need to open your doors again,the sooner you can put the temporary difficulties behind you.
Can a Working Capital Loan Help My Business Thrive?
Working capital loans provide a way to manage your cash flow without worrying about a shortage of cash. There are different kinds of working capital loans available to small businesses,so you can choose the kind that’s easier for your business to qualify for and the one that offers the best terms for repayment. You don’t need to have collateral to secure working capital loans, and typically, you don’t even need to tell the lender how you will spend the money. If you run a small business, are just starting a new business, or are simply suffering from a temporary shortage of cash, working capital loans can be a great solution for you.