Working Capital Options for Your Small Business

After you’ve been in business for a couple of years, money can become scarce. Start-up funds from friends, partners and your own coffers tend to be used up by this point. Even with steady sales, you may feel like you’re still treading water.  If you want to expand or need working capital, you may need to start looking at other options. You can get your momentum going again by using some quick close financing ideas.

Relying on a traditional bank loan is a risky proposition. According to a recent study by Dun & Bradstreet and Pepperdine Private Capital Access Index, banks tend to give most of their lending dollars to large organizations. Small firms have only a 50-50 chance of receiving a loan, even with a good credit report. As a result, smaller companies need to be more creative when they need business financing.

One option is a sale leaseback. If you’ve purchased heavy equipment or machinery for your company, or if you own a building or land, you likely have a loan for it. You can refinance that loan and then lease the equipment back to yourself. A lease arrangement usually has a three-year term.

Another option is a short-term business loan. This quick close financing option could also be useful for an organization that may not otherwise qualify for a standard bank loan. While it is generally more expensive than a regular loan, it is processed faster, thus giving an establishment quick access to funds. With this merchant loan, the lender provides funds in exchange for a percentage of the company’s credit card sales.

Usually small repayment amounts are taken from your company account daily, along with a percentage of the sales. A venture can qualify for the advance by showing it has a reliable credit card business. The financier continues to collect until the entire advance has been repaid. The lending period is usually quite short, lasting somewhere between 3 and 15 months.

Factoring is one of the oldest quick close financing options and is most common in industries that have receivables. It works like this: You bill a customer, the financier collects on that bill, and then the lender gives you the amount they collected, minus a percentage.  Its a great way to obtain quick working capital.

If you suddenly have a large order you need to fill but lack the inventory to supply it, or if you have a sudden opportunity for growth but lack the funds to take advantage of it, quick financing can be a valuable option. And because the loans are mostly short term, you won’t be tied up in a lengthy contract.