Many companies focus on getting working capital, especially in the fields of science and technology. This makes sense; with venture capitalists making prime time TV shows about granting capital to novel businesses and entire websites designed towards crowdfunding exciting projects, acquiring day to day capital is much less intriguing.
But businesses often find themselves going through lean times and needing loaned capital to continue to operate. Retail businesses may need to order inventory for future busy seasons; companies may not have matched their staffing levels to their seasonal volume; businesses may see an opportunity to grow and expand but need to invest to make that happen.
These five strategies will help your company get working capital when it’s needed.
1. If your business has been operating for many years…
If you have a solid history of business profits and steady operation, securing a loan from a traditional lender (a bank or credit union) may be the simplest and least expensive way to acquire working capital. Be prepared to show all of the information about your business, and much of the available information about your personal finances. Banks often want to see your credit score, any other debts for your business, proof of income, a business plan, and more.
If you can speak to the bank ahead of time and get a good idea of what they will be asking for, you can gather documentation and be ready to answer questions.
2. If your business has been operating for two years or more…
Traditional banks historically like to give money to businesses that hardly need it. If your business has only been operating for a couple of years, you may struggle to access capital from those most traditional sources. For businesses that have been around a few years, however, local and national chapters of the Small Business Administration (SBA) often have loan programs available.
The SBA is particularly helpful in funding businesses that are owned by women and minorities. These groups have traditionally had difficulty access working capital, which can limit their business’s ability to grow and thrive. The SBA works to fill this gap as it also combats the systematic biases that have led to the difficulties in the first place.
If your business has a solid operating history and you have fairly good credit, the SBA can be a great place to acquire working capital.
3. If your business has been operating a year or more…
After the financial crisis in 2008, many banks simply refused to lend money to the vast majority of average businesses and individual. In the wake of that crisis, a number of small, online focused lenders arose who were able to fill in the gaps and lend the money needed to keep businesses afloat.
Companies that allow small businesses to accept payments online, such as Paypal, have begun to offer working capital programs for small businesses. Paypal recently acquired Swift Financial, a startup that predates the financial crisis and which specialized in offering exceptional business loan products to small businesses. Experts believe that this acquisition will allow Paypal to offer a wider range of working capital products to their business customers. If your company already works with Paypal, then finding out how their capital programs would work for your business is a smart step.
4. If your business is brand new…
If your business is just getting off the ground, getting funding can be difficult. Working capital is one possibility, but if a business doesn’t have unicorn potential, many venture capitalists are uninterested. Many business owners turn to using their own personal credit to keep their business open and running while they get started.
Bootstrapping like this is possible, if you’re careful; the primary thing to remember is that personal debt isn’t canceled out if a business needs to file for bankruptcy, so mortgaging your house and racking up tons of credit card debt may not be a good plan. For smaller amounts, however, this may be the simplest way to get what your company needs.
5. If your business is looking for new capital opportunities…
New financial opportunities are becoming possible on a regular basis. Kickstarter and other crowdfunding campaigns, microloan websites, and simply borrowing from friends and family are all ways that businesses can get the working capital they need to keep their business doors open and running smoothly.
Staying apprised of financial news and developments can help business owners identify new opportunities and make sure that they have the information they need to make their business a success.
Companies often need to borrow and invest capital in order to make a profit, but borrowing in a smart and sustainable way is key. How has your business borrowed in a safe and sane way?