How to Get Access to Working Capital for Small Businesses
One characteristic of an effective entrepreneur is the ability to multi-task. Successfully running a small business requires managing many different revolving gears.
Working capital is the grease that helps prevent those gears from grinding to a halt. Therefore, this brings us to two important questions: What is working capital, and how do you get working capital loans for small businesses?
What is Working Capital?
Technically, working capital is the (hopefully positive) difference between your business’s current assets and your current liabilities. You need working capital to pay business debts and also to provide you with a margin of protection for short-term creditors. Having positive working capital should ideally be achieved all year long in order to cover payroll and purchase necessary inventory.
What Are Your Needs?
So how do you figure out what your working capital needs are? Two words: Operating Cycle. When you analyze inventory, accounts receivable and accounts payable cycles in regards to days, you are using an operating cycle. This means that you focus on three things: Number of days required to collect on an account; average number of days to sell a product; and the average number of days it took to pay your supplier invoice.
Don’t panic! There are many small businesses that can’t use financing from accounts payable alone to finance their operating cycles. If you find yourself in the (not uncommon) situation of falling short of your short-term working capital needs, you do have options. There are working capital loans for small businesses that can help your business through difficult times.
How to Obtain a Working Capital Loan
- Trade Creditors: Depending on your relationship with your trade creditor, you may be able to receive a short-term working capital to fulfill an order. The trade creditor may ask for proof of order or for security reasons they may file a lien on the order.
- Equity: If your business is not profitable and still in its first year of operation, then equity funds might be your best solution for providing your needed short-term working capital. Family, friends, your own personal finances or a third-party investor may lend you money in exchange for equity in your business.
- Unsecured Bank Loan: These are no collateral loans that can put cash in your bank within two weeks when obtained through ARF Financial’s network of FDIC-insured community banks.
For working capital loan amounts up to $725,000 ARF Financial does not require collateral and offers flexible terms up to 18 months. Small business owners can often receive the loans in 7 to 10 working days, and the interest is tax deductible.
If you would like more information on working capital loans for small businesses, contact the finance experts at ARF Financial today. We’re here to help!