Four solutions when cash is tight and you need Working Capital

Every business runs short on cash from time to time. While it can be caused by anything from bad employees to a lull in business, ironically, growth is a major cause. Funding new contracts, expanding a product line, or simply increasing orders requires cash to move forward. Below are four strong options for handling this stressful situation and putting cash in the bank for support. 

1. A line of credit: Many lenders offer a line of credit to small businesses that can be used like a credit card account – draw, pay, repeat. These can be unsecured or secured depending on your business and financial strength. When cash gets tight, a line of credit can be very handy. Timing to fund ranges from 7 to 45 days. 

2. Collateralized financing: All businesses have assets. Real estate and equipment make great collateral for a loan.  But did you know that inventory and accounts receivables are also assets that can be used as collateral for a short term loan? Many lenders look to these assets rather than others because they do not require any type of appraisal and can decrease the underwriting effort. Timing ranges from 21 to 45 days. 

3. Factoring: There are myths about factoring that we should clear up. Some believe this is only for the desperate and that your customers may think you are in trouble if you take advantage of this strategy. Not so!  Many large and highly respected companies take advantage of factoring for multiple reasons. First, it provides funds today that are due in several weeks. Second, the factor often handles the task of collection. Third, this immediately improves a corporations cash position when the stock value needs a boost. In case you are not familiar with Factoring, it is simply a method of selling invoices to a ‘Factor’ at a discount. The factor waits for the bill to be paid in full, making a margin based on the other benefit of factoring is that it is not a loan, so there is no impact to your credit report or balance sheet. Timing is 3 to 14 days. 

4. An SBA loan: If the need is not immediate,  but you know it is coming and you want to plan ahead, an SBA loan could be a great option for you. The mission of the SBA is to help small businesses grow. But, your projections should be presented in a convincing way that gives the lender clarity of the need and confidence in future success. Collateral is not always required, especially if you have a track record of successfully performing the same work, even if it was at a previous employer. Timing to funding ranges from 30 to 90 days.  

Remember, it is important to consider your options when financing. Otherwise, you end up spending more money that you intended. Just be sure and make your request before you completely run out of money, lenders don’t like that…

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