It’s not unusual for a business to find itself in a situation where they lack sufficient cash on hand to cover their short-term operational expenses. While selling off your equity might solve the problem in the short term, doing so can restrict your company’s potential for growth and reduce the overall control you have over your company. Luckily, there’s another way: a working capital loan can be instrumental in covering your short-term financing.
A Working Capital Loan Can Help Your Business Retain Equity
Dealing with Short-Term Expenses
Businesses often find themselves in situations where they struggle to cover their short-term running costs. These can be anything from paying suppliers and covering payroll to premises rent and debt payments. B2B businesses that are experiencing periods of rapid growth can be especially prone to this problem, as long payment cycles from newly adopted clients can result in bills quickly mounting before cash from accounts receivable has arrived.
Normally, businesses enjoy a credit period with their suppliers and vendors, so it is therefore generally accepted that a business should retain at least double the value of their monthly sales to cover their short-term expenses. However, as many business owners know only too well, this isn’t always possible, and it’s very easy for a company to quickly get into financial difficulties if these vital costs aren’t met.
Short-Term Financing Solutions
Entrepreneurs and business owners that find themselves in this challenging situation have several options ahead of them. Firstly, if a company enjoys a high level of liquidity, then the sale of current assets can quickly plug the gap in their finances. Current assets could be anything from excess inventory to accounts receivable, so long as they can be converted into cash within 12 months. However, this solution is unlikely to apply to all companies, and even then, selling current assets will only be effective up to a point.
Another strategy currently employed by business owners in dire straits is the sale of shares of the company’s stock or the taking on of additional owners. However, there is an exceptionally large opportunity cost in doing so. Entrepreneurs can quickly find themselves losing control of their company before they have a chance to realize their full potential. The sale of a company’s stock certainly has its place, but it should be used sparingly, and only to fund long-term assets and growth.
Why Loan Finance Is the Best Option
When faced with this situation, the only acceptable path forward is to utilize debt finance. This can help you avoid having to give up your hard-earned stake in your business, while also reducing pressure from collectors. This breathing room can allow you to focus on business growth, avoiding similar problems in the future by getting your business back on a strong financial footing.
Aside from avoiding the large opportunity cost inherent in the sale of shares of stock, utilizing debt finance can also be used throughout your business’s growth, whereas the sale of your equity dilutes over time and might eventually be dwarfed by your revenue, especially as a B2B company.
No matter what your financial situation is, here at Funding Well Capital, we’ve got you covered. By allowing us to cover your need for working capital, you can not only retain control of your business but focus on long-term growth. We specialize in making fast financing decisions to keep up with a fast-paced world. Depending on your credit score, you might even be able to avoid the need for collateral. So why wait? Contact Funding Well Capital for a free consultation today.