6 ways to get working capital financing
6 ways to get working capital financing
It can happen before you know it. Your business is growing; Your sales are increasing. Then, all of a sudden, you’re facing a cash flow crisis — and everything stops.
Without enough working capital, your business cannot expand. You may not even be able to fulfill the orders you currently have. About 35% of small businesses without access to capital said it was preventing them from expanding; 20% said they were forced to reduce the number of employees; and 16% say they can’t fund the sales increase, according to the National Small Business Association’s Mid-2017 Economic Report.
The average small business only has 27 “buffer days” in cash reserves. It’s no surprise that there’s a lot of risk facing a cash flow crisis.
Where to get the capital you need
So where can you get working capital financing?
Your first thought is probably to get a business loan from a bank. It’s a great option for some, but it doesn’t work for everyone.
Although last year, large banks approved a record number of small business loan applications (25.4%), and smaller banks approved about 49% of small business loan applications , but still leaves a significant proportion of small businesses unable to obtain loans.
One problem is that most small businesses that want a loan need $50,000 or less. Since the bank has to pay the same amount to process a $50,000 loan as a $1 million loan, but with much less profit, banks will have less incentive to make small loans without Small businesses need.
The good news: Bank loans are not the only source of working capital financing. Here are six other ways you can get the money you need.
1. Trade credit / supplier credit
You may have used this type of financing. If you’ve ever purchased inventory or net supplies for a net 30, 60, or 90 days, that’s an example of trade credit. Getting a short grace period to pay your bills can make all the difference in your cash flow. You may even find providers that will allow you to maintain a balance instead of paying your bills in full each month.
Another option for you and your provider to use is Fundbox Pay. When you make a purchase through Fundbox Pay, your participating vendors are paid instantly — and you have 60 days (or more) to pay. (Get details on how Fundbox Pay works.)
2. Business credit card
When you need money urgently, the answer to your problem may be right in your wallet. The Small Business Administration reports that credit cards are one of the top three sources small businesses use for short-term funding. If you already have a business credit card, you don’t need to apply or wait for approval, plus you can choose to finance a purchase with your credit card or cash advance.
Of course, with a business credit card that charges an average interest rate of 14.16%, this can quickly become a costly method of financing – especially if you miss a payment or can’t pay the maximum amount. minimal.
3. Business Credit Line
If you can qualify, a line of business credit offers a lot of advantages as a source of working capital. It’s unsecured, which means you don’t have to put up any collateral. What’s more, you don’t have to pay any money back until you actually use the line of credit. In other words, if you get a $25,000 line of credit in January and withdraw $15,000 for payroll in June, you won’t have to start paying until July.
As you pay back what you borrowed, the amount of available credit increases until it’s back where you started. There must be a catch, right? Yes: Your business will need a successful track record and an excellent credit score to qualify.
4. Cash advance financing for sellers
Does your business make a lot of money selling credit cards? Then, cash advance merchant financing (MCA) may be right for you.
With this funding option, you get a cash advance based on your business’ future credit card sales. Lenders collect a percentage of your daily credit card sales until the advance and fees are paid off. No collateral is required, and on days when your credit card sales are low, your payment will also be paid. However, merchant cash advance fees can add up quickly.
Learn all about MCAs in our complete guide to business funding.
5. Bill factoring
A factoring company (also known as a “factor”) buys your business’ outstanding invoices as a percentage of their face value – usually around 70% to 85%. The factor will then take over the collection of your bill; when the factor collects the money, they will give you the remainder of the bill’s face value, minus their fees. While this is a quick way to get money, you won’t get the full amount you owe. And since this element takes over your collection, this can be confusing for your customers.
7. Bill financing
While it sounds similar to factoring, bill financing has some important advantages. If you choose to pay your bill with Fundbox, you will receive the full value of the bill, minus a flat fee. With invoice financing, you continue to monitor receipts on invoices, so you are always in control and your customers never know you used an invoice sponsoring company. If approved, you’ll receive your money immediately and pay it back within 12 months, giving you plenty of time to get your bills paid.
Make your choice
While there are many options out there, choosing the right one for you depends on your business, progress, and financial situation. Often, the real right choice is to work with several financing options, using another for different needs.
Fundbox is committed to helping you quickly access business credit so your business can continue to thrive. Check out our in-depth, up-to-date guide to business funding for an in-depth look at all of these options and more.