Working Capital Financing for Small Business Owners
Are you a small business owner? Then you may know that in order to continue your day-to-day operations, you need to have working capital financing. Read on to find out what it is and how you can use it to improve your business.
First, a few definitions. Your current assets include your inventory, accounts receivables, and cash on hand. Your current liabilities include debts such as the payments you owe your suppliers. Working capital is equal to your current assets minus your current liabilities. It is the funds that you use for day-to-day business needs. You may use these funds for responding to emergencies, purchasing supplies, or writing paychecks to your team members.
When You Do Not Have Enough Cash
You may find yourself in a challenging place if you do not have enough cash for your day-to-day expenses. In this instance, you may benefit from working capital financing. Researching your options for financing is a good idea if you need cash on hand for meeting obligations in the short term. Here are some things you need before you approach a lender.
Before You Approach a Lende
Make sure you are prepared before you ask a potential lender for financing. Each lender is a little different as far as what they require. However, you should gather the past year’s financial statements, the past 3 years’ tax returns and your business plan. You also need legal documentation such as pertinent business agreements, incorporation filings and franchise agreements.
You also need to ensure that your credit report is correct and to find out what your credit score is. Before a lender approves you as an applicant, they will likely check your credit score. As your credit score increases, so does the probability that you will be approved by more lenders. Even if your credit score is not excellent, you may be able to find approval from certain lenders.
Another thing you need before you approach a lender is an understanding of what kind of funding is best for your needs. Three popular options are invoice factoring, business lines of credit and term loans. Do your research ahead of time so that you approach the right kind of lender for the best type of funding for your unique situation. Gather your business plan as well, including your target market, product review and business overview.
Although it takes preparation, going after financing as a small business owner is worth the effort. Gather documentation, check your credit report and research which type of funding will be best for you. Grab your business plan as well, and you will be ready to approach potential lenders and get the financing you need.
