There are many business owners who might be looking for working capital loans in Michigan but what you really want is a business line of credit. A line of credit is really the same as a working capital loan. If you are growing your business, you know that growth just didn’t happen by accident. It was usually the result of planning and execution.
But what do you do when you can’t plan for the ups and downs of any business? The delayed client check, the unexpected breakdown of equipment, the recent large order that just came in and many more unplanned events. A line of credit is the critical component for short term emergencies or opportunities.
Every business should have a line of credit and now, business are turning to Financing Solutions instead of commercial banks due to the quick turnaround, lower costs and easier approval standards
A Definition of Working Capital Loans in Michigan
When you are looking for long term business financing, a working capital loan or also line of credit can be an ideal solution. Since they typically have longer terms they don’t really work for large purchases or long-term initiatives.
Most businesses use working capital loans to keep their company running smoothly. With every business, there are cash flow issues. When you don’t have enough cash, you cannot make payroll, handle accounts payable or pay bills. This means you might have to borrow money from one part of your business to make ends meet in another.
For example, you may need to take funds from your advertising and promotions budget to pad the payroll budget. Unfortunately, that also means you can’t advertise the way you need to in order to contend with your competition. So your business struggles, customers begin to disappear and you eventually go out of business.
Businesses that have working capital loans in Michigan don’t work that way. They simply use the money from their loan as the extra cash they need to handle daily operations when cash comes up short. Working capital loans are especially helpful for businesses with seasonal or cyclical sales periods to handle their temporary reduction of business activity.
How Do Working Capital Loans, Well, Work
When you need cash to tide you over during slow periods, most businesses typically go to a bank and apply for working capital loans. They are sometimes easier to obtain. A smaller loan amount equals less collateral you have to pledge. Remember that a bank will always demand collateral.
Then, when business picks up again, you can pay the money back. Since it is normally not a large amount of money, most companies repay this quick business loan before the year is out.
Some companies also use working capital loans as a form of debt financing. This allows you to get out of debt without having to give up equity in your business. After all, you don’t want to be stuck needing to give up a percentage of your business just because you require a large order of materials or to hire seasonal staff.
Are There Any Drawbacks to Working Capital Loans
While not running out of cash is a significant benefit, there are also disadvantages to working capital loans. As a result, you need the full picture before you decide if it’s the best option for your business.
For one thing, banks make them difficult to get and keep. In addition to demanding that you have perfect credit and 100 percent collateral, they tie these small business loans to your personal credit.
This means that if you miss a payment, it can have a serious effect on your credit score. It will then be difficult for you to handle private matters like purchasing an automobile or getting a cell phone plan.
Also, working capital loans generally come with higher interest rates than other types of business bank loans. This is done to compensate for the risk they take in lending to a small business.
Why Working Capital Loans in Michigan Are an Essential Part of Business
Working capital loans are really important for every business owner because:
It allows your business to handle the ups and downs of cash flow – every business has these times. It seems like you never have enough cash. As soon as you think you do, a major client pays late or a piece of equipment breaks down. And there goes your cash. Having working capital lets you handle these setbacks easily.
They allow a business to adjust to market conditions – experts try to predict the future but that’s unreliable. The sad truth is that no one really knows when the next recession will strike. Still, the problem doesn’t have to be catastrophic to have a significant impact on your business.
Maybe your major supplier goes out of business because they can’t find enough qualified workers in their field. Perhaps economic conditions in another country affect the materials you can get here. When these types of issues occur, you will need the cash it takes to adjust. With working capital loans, you can ride out the storm.
Having one lets you hire staff when times are good – a sales boom is great for your business. The need to hire more staff to handle a significant increase in sales and customers is a good thing. But what happens when you are in a sales slump? You also need the ability to carry important staff when there are slow periods. Letting people go and then trying to hire them back later is no way to operate a business. Get working capital loans to prevent this kind of situation.
When is the Best Time to Get Working Capital Loans in Michigan?
The best business owners set up their LOC when they don’t need it so that they will have it in place when they do. You don’t want to wait until you are facing a crisis to try and get a fast funding business loan.
This is because, unfortunately, no one wants to help a business that is desperate. Your financials are not where they need to be and you have no cushion or anything to bargain with.
Banks are very familiar in dealing with small businesses in similar circumstances. And they always say no.
Why Banks Are Not the Place to Get Working Capital Loans in Michigan
Most people think that they should get a working capital loan from a bank. However, unless you have 100 percent collateral to back up the loan, they will not approve you. A bank will also require audited financials in addition to a 700 or better credit score.
A bank will also charge an application fee as well as a yearly maintenance fee. Plus, a bank will take six months for or more to make the decision on whether or not they approve your application.
This is not an ideal situation to be in. It’s especially dangerous if you are struggling to meet payroll and handle daily expenses.
Are There Alternatives to Working Capital Loans in Michigan
Over the last 10 years, alternative financing companies like Financing Solutions (www.financingsolutionsnow.com) are replacing commercial banks as the go to source for small businesses with yearly revenue under $10 million. Small businesses are now using a line of credit in place of other types of financing because a LOC allows you to have a backup plan.
With Financing Solutions, a LOC doesn’t cost anything until you use it. Best of all it only takes a few days to get in place.
When you want to use your line you will simply log into your online Financing Solutions portal and request funds. They will wire the money into your business bank account the same day. You can also log into your portal to pay off the balance at any time.
How to Better Manage Your Working Capital
Eliminate unnecessary expenses. It’s important to periodically assess your expenditures to determine which ones you really need. And which ones you can do without. This keeps more cash in your pocket to handle essentials.
Invest money back into your business. Getting business money fast is great but it’s no help to you if it just sits there. During times when you are not in dire need of cash, take some of that money and invest it in your future growth. This is called retained earnings. Some possibilities for this include paying down your trade suppliers or purchasing extra inventory.
Have a plan for your working capital. Don’t just spend the cash on every little thing. Create a budget breakdown to decide things like how much should be going to make payroll and what percentage to set aside for new opportunities.
Increase your working capital. There are numerous ways to do this. For instance, you can refinance your fixed assets. If you are making a monthly payment to lease major equipment and its depleting your cash, you can get a fast business loan to purchase it outright instead. It might also be possible for you to change your accounts receivable policies. Give customers only 30 or 60 days to pay instead of the usual 90. Reward those who pay early to encourage the habit. This should give you better account receivable turns.
Get working capital funding from Financing Solutions. When you improve your cash flow, you improve your business. In this way, you can worry less about how you will pay bills and use more brain cells to focus on growth. Take this step now and your customers, employees and business will thank you later.