Small business owners in Tompkins County often find themselves on a cash flow rollercoaster, which affects the company’s working capital. When it is difficult for your business to meet expenses, you can apply for a working capital loan.
What is Working Capital?
If you were to ask your bookkeeper what the definition of working capital is, they would tell you that your working capital is inventory on hand and your accounts receivables minus your payroll and accounts payables. Translating that into layman’s terms, your working capital is inventory and customer payments minus what you pay employees and suppliers. If you have cash on hand or in the bank, this would also be part of your working capital.
You use this money to pay all of the day-to-day- expenses you encounter as a part of operating your business. As with all small business owners in Central, NY, you experience times when you don’t have enough cash to cover those expenses because your money is tied up. For example, you may have just ordered a big shipment to meet customer demand, some of your customers may be slow to pay what you owe, or you just hired a new employee.
When your cash on hand doesn’t meet operating expenses, you may need financing to help you cover outlays until your cash frees up. You don’t need a large loan, or need long-term financing, just something to help you cover your current shortfall.
What are Working Capital Loans?
A working capital loan is a short-term financing option that will help you cover the everyday expenses of your business. An example of a short-term loan is a business line of credit, which is a form of revolving loan you have access to when you need it and once you pay back what you borrow you have access to the financing again.
Working capital loans are easy to apply for and you often receive financing faster than you can with a standard loan. You also don’t have to explain how you want to use the funds, which is a requirement for standard loans. This means working capital loans are great for unexpected losses, however, it is usually best to apply for some loan types, such a business line of credit, before you need it.
What Expenses Qualify for Working Capital Loans?
You can use working capital loans for standard operational expenses, including:
- Take advantage of a fantastic discount from a supplier
- Stock up on inventory before a peak season
- Cover operational expenses during a slow season
- Cover pre-launch expenses
- Update your product lines
- Renovate or relocate your office space
- Cover expenses during economic fluctuations
- Cover expenses while collecting from slow paying customers
- Help cover additional marketing efforts to assist in business growth
- Meet payroll during an expansion
A working capital loan will prevent you from having to search for an investor or dip into your personal savings to help meet cash flow needs and can help you improve your business credit rating if you pay the loan back in time.
There are several different types of working capital loans, and each one has its advantages and disadvantages. You can speak with our loan specialists to learn more about working capital loans and if they can help your business.