Sometimes a business has cash-flow problems even though it is doing extremely well. There are a number of valid business reasons why this could happen. For example, the business is unable to access cash because it has to wait for payment of large orders (sometimes for up to 90 days). It is at times like these that access to working capital is helpful.
Applying for finance always needs careful thought because you will have to pay back the amount you borrow plus a substantial amount of interest. In other words, it costs to raise finance. Therefore, if you need money to finance the day to day operations of your business (working capital), then you need to have a really good business reason why your cash flow is so bad.
The following situations are good examples of when you can consider raising working capital:
It is important to bear in mind that lenders are in the business of earning money from the amounts they lend. Therefore, they are not interested in lending money to companies if there is a high risk that the company will not be able to afford to repay them. Below are a few situations that are not suited to raising finance:
It pays to analyse your business honestly – if need be, find a trusted outsider to do this for you – before you pour more money into a business that might not survive. You need to be sure that this is just a temporary glitch and your business will soon be on its feet again.
Once you've decided that a loan is worth the risk, the next key step is to minimise the amount of interest you have to pay. If you have a short-term need, take out a short-term loan. The same goes for a long-term need; A long-term loan would work best. This is the most cost-effective solution. Also consider whether this situation is likely to arise again and if so, consider finance options that enable you to access extra finance during these periods. Revolving credit or overdraft facilities could help here.
Here is a list of different financial options you can use to access finance for working capital:
Finfind provides its services free of charge to businesses seeking finance. Our primary purpose is to link SMEs with all the relevant finance providers and finance products that match their funding needs. As a matching service we are not required to be a registered finance provider as we do not loan money directly.