Blog Details

  • August 01, 2020 in Impacts of COVID-19 on Small Businesses
  • 0, by Yvettej
  • 56

Securing Working Capital for Your Small Business in the Era of COVID-19

Access to working capital is a critical need for small businesses facing the economic fallout stemming from the pandemic.

Managing cash flow in a period of crisis is never easy. With COVID-19, it’s now compounded by supply chain disruptions the world over. Plus, you may also be facing the curtailed movement of potential customers. All these factors are likely to lead to a cash flow crunch in your business.

Where possible, you may have already taken advantage of the government’s business stimulus package under the Payroll Protection Program (PPP). But that’s just a loan for payroll expenses if you want to be eligible for loan forgiveness.

So, how do you secure working capital for the other myriad of business expenses that are not payroll related? Your rent or mortgage expenses? Utilities, vendor services, marketing, inventory costs, and other industry-specific and overhead expenses?

If you are a small business owner seeking working capital to cover your expenses, here is a quick guide to secure business financing for your working capital needs.

Project your working capital needs

Knowing how much working capital you need will help you develop a plan. Look at your existing expenses and the funds you have available now to cover these. Now assess how will your future contracts and payments fit into your operations.

Typically, you want to have at least a working capital ratio of around two. That is, in calculating your working capital, you need your assets to be at least twice the value of your liabilities. For example, if your assets equal $100,000, your liabilities should be around $50,000.

If the ratio is lower, then that means you’ll have less working capital. Therefore, you may experience a cash crunch, which can impede you from generating more revenues.

Now that you have a clearer picture of your working capital needs, you can look for funding options that will suit your business.

How to get working capital for your small business operations

Sometimes, the working capital you have on hand isn’t enough for your business operations. Smart borrowing to fund your operations could be the solution to keep driving revenues.

Because a strategic injection of working capital now to meet your short-term obligations can put you on track to take advantage of future opportunities and longer-term investment options.

So, as you identify how much working capital you need, here is how you can go about securing a business loan for that short-term cash injection in your business.

Merchant loans for small businesses

A short-term merchant loan can come in handy when you have business expenses that can help you earn more. A merchant cash advance (MCA) provides a lump sum payment of money up-front. You can repay using a percentage of your daily or weekly credit and debit card sales plus a fee.

MCAs are easily accessible without the need for traditional collateral resources. Your risk is determined by your future receivables or daily earning potential. So, we normally recommend a merchant loan when you need working capital to help you generate additional revenues.

Here are a few scenarios.

  • Take, for example, your assessment of your upcoming contracts. What if you’ve got a large supply contract, but you need working capital to fulfill that order?
  • Or, if your business got damaged from the recent heavy rains and flooding and you need to effect repairs quickly so you can get back to meeting customer orders.
  • You need to stock up for an upcoming sales period that traditionally does well for your business. Or perhaps you want to take advantage of an opportunity in your industry.

In these and similar scenarios which you’re likely to encounter in your business, a merchant cash advance is a perfect short-term lending solution to keep your business going.

Applying for a working capital loan

SMBs employ 60% of the American workforce. Yet, as you know already, they are often less likely to qualify for loans from traditional lending institutions, according to the Business Insider SMB Lending Report.

Banks are often inflexible and more inclined to lend to medium to large enterprises. So, as a small business owner, you need access to non-bank business lending because you don’t qualify for traditional sources.

This is where alternative lending becomes a driving force for small business funding. You can close the small business financing gap with alternative business lending solutions.

Alternative lending solutions like Sheer Funding have always leveraged the use of technology and other resources to drive efficient small business lending. This allows our institutions to provide faster, more effective, and efficient lending services to small business owners who would get stuck in the bureaucratic processes of traditional banks and miss opportunities for growth.

Now, merchant loans can come with high lending rates. So, you need to know beforehand what you may be getting into so you can determine if your business can meet those requirements. If you’re seeking a merchant loan or other working capital funding for your business, then follow our simple and quick process to request a quote today.

 

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