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Quick Guide on Working Capital Loans for Your New Business

Even after you have sourced suppliers, inventory, and customers to create a profitable enterprise, you may run into short-term cash flow problems. In fact, it’s common for a new business to require additional working capital to get through the operating cycle. Here is everything you need to know about working capital and how to fund it.

What It Is

Working capital is the cash that helps you fund your expenses while you wait for your customers or vendors to pay you. Obviously, most companies have to purchase inventory and pay for other expenses before they get paid by their customers. The challenge is that you must still satisfy your operating expenses while you’re waiting to get paid. The payment terms you arrange with your vendors may also not be as favorable for a new business. That means you have to pay for your inventory before you can sell it to turn a profit.

How to Calculate It

To calculate your working capital needs, you must take the time to understand your operating cycle. Here are a few things you need to know:

–          How long it takes to collect on receivables

–          Net payment terms for your accounts payables

–          Average number of days for inventory turnover

This information will help you understand how much working capital you require to finance your current operating expenses. Once you have an idea of how much money you need, it’s time to figure out how to get it. As a business owner, you have several options available to you.

How to Fund Working Capital

A new business may rely on equity payments from the partners or investors to bridge the gap. That means you have to put more money into the business until it’s profitable enough to run on its own. If that’s not an option, you can also look at invoice factoring. As soon as you send your customers or clients an invoice, you can take that invoice and turn it to cash by using a factoring service. In return for quick cash, the factoring company retains a portion of the invoice as payment.

In many cases, invoice factoring and equity payments are not enough to bridge the gap. This is often true for new businesses, but it may also be the case for your seasonal needs. Fortunately, you still have the option to find working capital loans in Alpharetta. A working capital loan is a small business loan designed specifically to get you through the operating cycle. These loans are usually short-term loans, but can be adjusted to meet your specific needs.