Boost Your Business Cash Flow: 6 Effective Short-Term Working Capital Advance Strategies
Securing financing is one of the best key moves to ensure the future success of your business. With so many options to choose from like SBA loans and business lines of credit, it can get a little overwhelming when figuring out which option is best for you and how each option can be utilized as a capital injection within your business.
Luckily, Backd is here to help you find the perfect business financing solution that helps your business thrive. With a multitude of offerings to choose from, let’s focus on short-term working capital advances with six of the ways that you can effectively inject working capital into your business.
What is working capital?
Working capital is the amount of money your business has available after subtracting your expenses from the money your company is bringing in. While revenue looks only at money coming in, working capital takes into account things like interest or principal payments on business loans, investments, and accounts payable and receivable.
In other words, it measures your short-term financial solvency and health. This differentiation is important; a company can have profits, but with too many investments or too long of a window for your customers to pay bills or invoices, you might not have the cash on hand when you need it.
What is a working capital advance?
A short-term working capital advance is a type of financing designed to help businesses cover their day-to-day expenses, such as payroll, rent, and inventory, when they are experiencing a temporary cash flow shortfall. It is typically a short-term loan that must be repaid within a few months to a year and is intended to bridge the gap between when the expenses are due and when the business receives payment for its products or services.
This type of financing is often used by small businesses and can be obtained from a variety of sources, including banks, alternative lenders, and online platforms.
Effective uses of a short-term working capital advance
1. Inventory financing
It’s always good to be prepared, and sometimes being prepared can actually cost your business less in the long haul. For instance, more often than not, purchasing more significant amounts of inventory usually comes with a slight discount or a lower cost per item that can help your business keep a competitive edge. This can be great, especially when the items are non-perishables that allow you to stay stocked for all seasons.
The demands of your inventory aren’t always going to match the flow of your capital though, but you can utilize a short-term working capital advance so that your business can buy in the stock that it needs now, then use the profits of the inventory to repay the loan back. This type of inventory financing is great for maintaining a steady flow of goods and can also help your business respond quickly to changes in consumer demand.
2. Operation expenses
Do you know that you have a slow month coming up that will be made up for with a mass increase in business the following month? Many industries feel the impact of seasonality on their businesses whether it is a bar during dry January or a shop on a university campus in the heat of summer, so how can a short-term working capital advance help in these situations?
Well, you can use the funds from this financial product to cover your daily operating costs which include items such as rent, utilities, salaries, or even marketing expenses. By using working capital to cover these you avoid taking a financial hit while using extra income from the busier periods of business to pay off the loan, this helps keep your capital free and ensures that you do not have gaps in your cash flow.
3. Debt consolidation
You may have already acquired debt from various sources while doing business, accruing debt is expected and it’s bound to happen at some point in your entrepreneurship. But, keeping up with multiple loans from many different lenders can often make things more complicated, especially when trying to keep up with repayment plans.
Using a short-term working capital advance to consolidate some of your short-term debts can help provide you with the opportunity to take control of your payments. When doing this you have a chance to keep your interest rates lower and establish terms that you are more comfortable with while helping to make your repayments a lot more manageable over the course of the agreed-upon term.
Having only one loan to make payments on can help your business in the long run as it cuts down on your account payable and gives you a chance to start fresh with only one lender. Just be sure that you review the rates to ensure that this move is better for your business in reference to the previous loans and be cautious as to not withdraw more funding than you can afford down the line.
Expansion is a thought that develops in the mind of any business owner who is basking in success. It’s a great next step for bringing your enterprise to a wider audience while growing your portfolio as an entrepreneur. But expansion can be costly and often require support or backing from outside your business.
There are several expenses associated with expanding your enterprise, each with varying levels of importance, these can include but are not limited to hiring new employees, marketing, researching locations, and renovations as well as the cost of the location itself. A short-term working capital advance is a great way to back your growth as it can be used to support any aspect of the endeavor giving you complete control over your capital.
5. Equipment financing
Have you had your eye on a new piece of gear that could really change how you do business? Has the large price tag that comes with that next-level equipment dissuaded you from taking the plunge? You can actually use a short-term working capital advance to buy equipment now, with the extra capital boost you can pay for the equipment that you need and pay back the loan over time.
Using short-term working capital advances for equipment financing is a great way to get the items your business needs to succeed while avoiding the risk of spending all your capital right away. It also leaves you with the capital that you need to run your business without any disruptions to your cash flow.
6. Accounts receivable financing
Does your business have deals in the pipeline that are close but still need to be finished? Could you use that capital now to bridge a gap in your business’s cash flow? Short-term working capital advances are a great way to bridge cash flow gaps like this.
You can use it as an advance against guaranteed capital that you know is coming your way to pay for expenses and then when the capital clears all wait times, use it to repay the advance over time. This also applies when you have outstanding invoices that are causing a cash flow gap, use the short-term working capital advance to cover those funds that may take time to arrive in your account and take control of the capital without having to wait.
Short-Term Working Capital Advance Options
$25K - $2M
4 - 16 months
Minimum of 1 year in business, a minimum $50K monthly revenue, a business bank account, and a personal credit score of 625
$5K - $250K
3 - 24 months
Minimum of 1 year in business, a minimum $100k in annual revenue, business bank account, personal FICO Score of 625
$5K - $2M
6, 12, or 24 months
Minimum of 2 years in business, a minimum $50K in annual revenue, $12K in annual credit and debit card sales, no credit score minimum
$2.5K - $500K
1 - 3 years
Minimum of 2 years in business, may have to provide collateral, and a “strong” credit score.
Up to $1.4M
Varies based on your credit card transaction volume.
Minimum of 6 months in business, a minimum of $60K in credit card sales or $144K minimum among all transactions, and a minimum credit score of 500.
Get Your Working Capital Needs Backd
If any of these ideas for using a short-term working capital advance have resonated with you or helped set a plan in motion, then consider getting your working capital from Backd! With amounts ranging from $25K to $2M and terms that range up to 16 months, Backd’s working capital could be the tool that takes your business to the next level. Apply in just 3 minutes today to get approval in 24 hours.