For business owners, opportunity cost haunts each decision. Am I doing what is best for my business? Will this decision make it harder to meet next month’s payroll? Will I regret losing potential business if I did not take a chance on this opportunity?
If these questions sound familiar, you are not alone. I receive calls each day from business owners just like you.
When an opportunity comes knocking, it may seem intuitive to rely on personal credit options like credit cards or home equity lines. However, business owners put themselves at risk when they pledge personal assets or use personal credit to fund their business needs. What other options do you have?
In this article:
- What is a Working Capital Loan?
- Real Life Examples of How Working Capital Loans Help Businesses
- Common Questions about Working Capital
- How to Assess if Working Capital is Right for You
As a financial consultant, my days are dedicated to helping business owners answer questions like “How do I get cash for my business?” and “Which solution will I get the best return-on-investment (ROI) for my business?” I work closely with business owners to help them analyze their investment opportunity, potential risk, and return on investment. My goal is to help them find the right solution to overcome potential challenges. While a working capital loan is not for every situation, I have seen many strategic business owners recognize the right opportunities to leverage cash to produce a significant return.
What is a Working Capital Loan?
Working capital is an unsecured (no collateral) cash loan that can provide funds to strengthen your business and expand your operation. As an example, say you presented a new opportunity to start a new relationship with a large client but lack the upfront cash to purchase the needed materials to get the relationship started. A working capital loan could be the ideal solution allowing you to take advantage of this opportunity.
Simply put, a working capital loan is an effective and convenient way to get cash fast. Having access to cash provides your business the ability to scale. With such growth, you may need to acquire, upgrade, and maintain physical assets like property, buildings, personnel, equipment, etc. Without cash on hand, your business may not be able to make these necessary investments to experience grow.
A working capital loan may allow your business to take better advantage of the opportunities it is presented.
Real Life Examples of How Working Capital Loans Help Businesses
Now that you have been introduced to working capital loans, let us explore how working capital may help a business grow. Below is a case study that I would like to share to provide a real-life example of how a working capital loan may benefit a business. To protect their identity, I will refer to the business owner as Steve.
Working Capital Case Study
- Opportunity: Steve approached me about 3 years ago while bidding on a mid-scale construction project. To adequately complete the contract, he needed to purchase a significant amount of raw materials for around $100,000. This new obligation would be in addition to his company’s traditional payroll and operating expenses. However, Steve did not have enough cash on hand and if he did not secure needed funds, he would lose the contract to the next highest bidder.
- Anticipated Return on Investment: After the 6-8 months the job would take to complete, Steve expected a gross payout of roughly $700,000.
- His Challenge: Through our conversation, Steve explained that he could come up with the upfront investment. However, such an investment would have to be pieced together from a combination of savings accounts and credit cards. He ran a solid business, but this was the first time that such a large upfront investment would be required. Steve felt depleting his savings and maxing out his credit lines was a big risk to take.
- The Solution: I presented Steve with the option for a $100,000 working capital loan. We discussed the total cost of the working capital loan and then compared that cost to the $700,000 in revenue produced by the project and determined the working capital loan would result in a very strong return on investment. The working capital loan was also attractive since it did not require Steve to exhaust his personal savings and leverage his personal credit. Steve also like the fixed, scheduled repayment plan on the working capital loan that forced him to reduce his loan amount in a timely manner.
- Result: By providing financial guidance and thorough planning, Steve accurately forecasts payroll, insurance, labor, materials, and loan repayments to develop a competitive bid. He did all this while still feeling confident about the prospect of making money.
- Reinvesting the Profits: Ultimately, Steve won the contract and secured funding with a working capital loan. With the additional profits, he kept investing back into his business. After benefiting from a working capital loan, Steve has become a repeat customer utilizing the same strategy and logic to make ongoing sound decisions for his business.
Building Positive Relationships for Future Opportunities
Our successful initial working capital transaction allowed Steve and I to build a strong working relationship. This relationship has resulted in Steve and I conducting three (3) additional working capital loan transactions. Each loan helped Steve expand operations and grow profits.
Common Questions about Working Capital
How quickly can a business access working capital loan proceeds?
The quickest I have ever funded a working capital loan is in a single business day. However, the entire process, application to funding, typically takes about two (2) business days. The goal of working capital is to fund as quickly as possible so your business can take advantage of as many opportunities as possible.
To start the process, a business must compete a simple, one-page application and provide the last 90 days of business bank statements. The entire process is quick, convenient and can be conducted online, from any mobile device, accommodating even the busiest business owners.
What industries benefit most from working capital financing?
Some of the top industries served by working capital financing include auto repair, towing, retail, hospitality, construction, transportation, manufacturing, landscaping, healthcare, restaurants/franchises and beauty salons. My friend Steve worked in construction/transportation.
What is a working capital loan not meant for?
Working capital is not for everyone and not for every cash requirement. It is not a product meant to bolster your savings account or consolidate other debt. It is a solid product for business owners looking to expand their operation when they know that upfront cash will generate a strong return in a fixed period.
How to Assess if Working Capital is Right for You
Exploring your financing options can give your business the power to say yes. Say yes to new locations. Say yes to bigger contracts. Say yes to more business. Beacon Funding specializes in finding the right financing solution that suits your business goals. During the application process, I ask a lot of questions to understand what’s really important to your business, your goals, and how working capital may benefit you. Call 847-897-2499 and we can discuss:
- How will you apply these funds?
- How much money will this loan make you?
- Why do you need these funds?
Like my friend Steve, businesses can take advantage of working capital to increase cash flow when it makes sense. Applicants who meet eligibility requirements can expect a completed process from application to funding in as little as 24 hours and may qualify for up to $150,000. If you have an opportunity for growth and are considering working capital consider filling out an application at beaconfunding.com/apply.