US small businesses are heading into the summer season. This season brings mandatory change to most of the US small businesses that may have them looking for working capital to manage both busy or a slow summer time.
For some businesses, the summer season is a busy season that requires additional workers, increased marketing, stocking the inventory, and a need for working capital to help with financing the various activities. And on the flip side, for some businesses, the summer season mean a slow season that could lead them to creating layoffs, little capital on inventory and marketing or possibly transitory shutdown of the business operations until the next season.
Here are some innovative working capital sources for any business related situation that you experience this summer season, including running an existing business, an existing business that will have busy or slow summer time, or a new business that you’ll start this summer.
SOURCES OF WORKING CAPITAL
Business Lines Of Credit
A line of credit or LOC is a loan that allows small businesses to run and develop effectively. Business Line of credit can also be used to fund the short-term working capital requirements. The credit line amount is based on the sales performance of a business with an effective cash flow. A business line of credit is appropriate for businesses with seasonal expenses or irregular working capital requirements. You can also use business lines of credit for long term investments like buying new equipment, property or assets purchase, etc.
Merchant Cash Advance
Merchant cash advance is another good option for seasonal businesses, as there’s no fixed payment connected with it. This is not a loan, but is a purchase of future credit card receivables using factor rate.
For instance, in case you are making $50,000 monthly in processing, a lender might approve you for $50,000 in exchange of $60,000 of your future sales. To collect the receivables, the lender would hold 20% of your daily sales until the $60,000 are fully paid back. This indicates that if you are experiencing slow time, you will pay less, however if you have a busy time, you will pay high.
In case you have previously owned valued assets, they could be employed as collateral for both a conventional or high-risk asset-based lending program. These assets include, but aren’t limited to, equipment, accounts receivables, automobiles, real estate, and inventory.
The asset-based lending would structure out an extended repayment term with conventional low cost for capital rates. While high-risk asset-based lending would be shorter in term, normally less than 9 months, with higher borrowing costs. You can use both programs to help your business during summer season if you have owned assets or resources that qualify.
Lenders normally lend based on 60-75% of the LTV of the assets. The loan to value of an asset characterizes the anticipated amount that the lender could sell it for within three-month time, if the borrower defaults on the obligation.
Accounts Receivable Financing
If you have outstanding unpaid invoices that you are waiting to get paid in the next 10 to 90 days, you can use non-recourse accounts receivable financing to get an advance on outstanding receivables for working capital throughout the seasonal period.
In account receivable financing, the factoring firm would purchase the outstanding receivables, then provide you with 80% advance to cover the working capital expenses. And as soon as your customers fully paid in 10 to 90 days, the lender will provide you the remaining 20% receivables, excluding the discount fee. The approval is highly based on your customers’ credit eminence, instead your own credit status.
Purchase Order Financing
You can use this financing program to help purchase the supplies, inventory, and recyclables needed to complete orders throughout the forthcoming busy season. The lender would directly give the payments to your supplier. When all the processes have been performed, such as getting materials to production and selling, the lender would be paid from a part of sales, along with a discount fee for the financing arrangement.
You may want to purchase new equipment for your business to help you in the busy season; however you don’t have the capital to buy it outright. For these situations, equipment leasing is your best option. you can select lease programs that consist of a true lease in which you use the equipment all through the lease term and return it at the end of the term, or some different types of leasing that include buyouts of the business equipment after the lease term for as little as $1.
Home-Based Business Loans
Getting funding for your startup is complicated, but the things get more difficult when it comes to getting funding for home-based business loans. But at present there is an option for you to fund your home-based business and take the full control of your business. If you are a home-based business, you have the freedom of work short or long hours, it is all up to you, and you can work alone or hire an employee for your business. The major advantage of working from home is you can get many tax benefits. You can qualify for a rebate on your home’s loan interest, maintenance and renovation, property taxes and many others.
The Final Word
Consider these working capital funding to meet your business financial needs this summer. It doesn’t matter whether the summer season creates a busy or slow period, you can also use these capital options anytime when a need arise. You need to think proactive and analyze your financial requirement– positive or negative – of the said season so as to make strategic operational changes beforehand. The good news is, Merchant Advisors is here to help small businesses like you to get custom funding options. All you need to do is pick the one as per your requirements.