Most of the time, people face it quite often. Before you even get a hint of it, it takes place. Your business may be rolling, and you experience considerable growth in sales. If suddenly everything comes to a halt and you start facing a cash flow crisis, you should be assured that your business requires working capital finance.
Without an adequate amount of working capital, no business can expand. It would be challenging for you to fulfil the orders that you currently face. Some of the 35% of small and medium businesses do not have any access to the capital. Due to this, they are not able to expand their business operations. 20% of these businesses are forced to reduce their employees as they do not have proper working capital. The rest, 16%, are not being able to finance the increased sales. Things get worse as the small businesses have only 27 buffet days of cash in reverse. Due to this, the business might face risk and a crunch of cash flow.
From where can you get the working capital?
The first thought that every business has is to take a loan from the bank. It can be an excellent option, but it does not work for anyone and everyone. You can find various big financial institutions that approve small business loan applications through various businesses. But if you check the small financial institutions, you will see that 49% of the business does not have the provision of getting small business loans. It is a problem that leaves the business in a staggering situation. One of the reasons for this might be that the small business looking for loans from financial institutions needs an amount that is less than the stipulated loan amount. But while processing the loan, the bank would charge the same interest and other charges like the excessive loan amount. Due to this, the small business does not look for bank loans.
But the good news is that these small businesses can take loans from various other sources apart from banks. Here are the six primary sources from where these business organisations can take working capital.
Vendor credit
Once you choose this option of financing, you get a grace period to pay out your bills. You can find various vendors who will help you to maintain a balance.
Business credit cards
If you are in immediate need of money, you can choose this option. The business credit card charges an interest rate of about 14.16 %. Therefore there is no chance to miss the payment.
A business line of credit
It offers a lot of advantages, but it is secure. Hence you do not have to worry about any collateral. When you are paying the amount that you borrowed, the amount of credit might increase considerably. Hence your business must have a good record of success and a handsome credit score to qualify.
Merchant cash advance financing
With this option, you can take advantage of the future credit card sale of your business. You do not require any collateral. But the fees of the merchant cash advances may escalate quickly.
Invoice factoring
In the case of invoice factoring, the factoring company would purchase the business’s outstanding invoices. They do it for a certain percentage of the face value that tends to be about 75% to 85%. When the factoring company collects, they provide you with the face value while deducting the fees. It may be a quick way to receive your money, but you would not be paid the total amount you deserve. The factoring company takes over the collection, and it might cause some confusion to the customers.
Invoice financing
Invoice financing might sound quite similar to invoice factoring. But in the case of invoice financing, you may face various advantages. You can continue overseeing the collection of the invoice. It lets you stay in control. The customer would not know that you have ever used the invoice financing company. If you get the approval, then you can pay the money in 12 months. It is a long duration that provides you with a lot of time to get the payment for the invoices.
Besides, with such easy access and collateral-free borrowing, you can efficiently grow your business without facing any money crunch. So, what is working capital management? Once you know about it, you can efficiently deal with your capital.
But before you indulge in any one of the sources mentioned earlier for working capital finance, you need to evaluate various terms and conditions of the lenders. Ensure the various interest rates along with processing charges and various other fees.
