Running a small business successfully takes a lot of work, but more importantly, it is crucial always to have working capital. Working capital is needed to cover day-to-day and shorter-term operational expenses. When you’re short on working capital, you may miss out on new opportunities to expand the business, employ more employees, purchase inventory, or expand your advertising and marketing activities. At worst, not having enough working capital can lead to late payments to vendors and creditors, damaged credit scores, or have you seeking loans from preying lenders.
Well, there is light at the end of the tunnel, as you can avoid common working capital mistakes. The below tips can help you assess your working capital needs and options to stay clear and run a successful small business.
Working Capital Amounts Needed To Be Successful
This is a common question asked by many running small businesses. The first step to accumulating enough working capital is to assess how much business financing you need and how long you need it. Understanding this small detail will help you, and potential lenders determine the best working capital financing for your needs. You will also need to understand the running costs and expenses to budget for cash flow in case of emergencies.
It’s recommended to have enough funds to cover at least three to six months of operating expenses to manage the slow periods. If you’re expanding your small business, you might have working capital needs for adding staff, increased inventory, and other growing overhead expenses. Short-term working capital needs are usually needed for less than 12 months; however, they can extend to 18 months. These needs frequently result from business seasonality or from fulfilling new contracts.
Working capital needs that are longer than 12 months are more common for start-ups. Start-ups need working capital to hire staff for professional fees, filings, and anything else specific to getting a business up and running. If your business is a start-up, it’s wise to have six to 12 months of operating expenses available.
When You Should Consider Working Capital Funding
Working capital funding is helpful to small business owners who are struggling to cover the day-to-day operational costs or need to finance temporary expenses for inventory, payroll, or supplies. It would help if you also considered funding options when;
Sales are seasonal, and the business experiences annual dips in revenue.
Manufacturing needs are more significant during low-revenue months, and the business needs to cover production costs.
Working Capital Finance For Small Businesses
There are several sources of working capital available to run your small business successfully. Working capital loans and funding vary based on the number of years in business, your creditworthiness, industry, and other factors. The two most common working capital loans are;
Working Capital Loans From Traditional Lenders
Commercial banks and credit unions offer working capital loans if your business qualifies. Loan qualifications are determined by the type of business, the business age, your credit history and score, and more. Traditional lenders can be reluctant to finance companies with less than two years of operations, as small businesses are deemed high-risk for these lenders. What’s more, The terms are more extended; thus, interest is included, and you end up paying a lot more than what you borrowed.
Alternative Lenders and Merchant Cash Advance Services
Alternative lenders offer financing options for working capital that are attractive to small business owners and can be a better option, especially for small businesses with a lower credit score. Alternative Lenders like ByzFunder do not deem small businesses high-risk and allow for a faster turn-around time and a more straightforward method to get funded. There are no interest charges with a lesser term as you would receive from a traditional bank. Your payment structure is transparent, and there are no hidden fees. A shorter-term means a faster way to grow your business.
If your business could use a working capital boost, apply for funding with us today. Our fast, simple, and secure working capital funding options will support your small business’s success.