10 Ways to Use a Working Capital Loan to Grow Your Business
by Ali Hanckel on Apr 10, 2023 10:59:37 AM
Whether you're just starting out or already have an established business, growth and expansion is something on every business owner's mind. With the right plan in place, however, a working capital loan can be the answer to helping take your small business to the next level. In this guide, we'll cover 10 creative ways small businesses can use a working capital loan for smart growth strategies that will produce success now and well into the future.
What is a Working Capital Loan, and How Can It Help Your Business Grow?
A working capital loan is a type of business loan designed to help businesses meet their short-term financial obligations, such as payroll, rent, and inventory expenses. Working capital is the difference between a business's current assets and its current liabilities, and having sufficient working capital is critical for a business's operations and growth. Here are some ways a working capital loan can help your business:
Cover short-term cash flow gaps
A working capital loan can provide quick access to cash to cover short-term cash flow gaps, such as when accounts receivable are slow to come in or unexpected expenses arise.
Fund seasonal fluctuations
Many businesses experience seasonal fluctuations in sales and revenue, and a working capital loan can help bridge the gap during slower periods.
Invest in growth opportunities
A working capital loan can provide the funds necessary to invest in growth opportunities, such as expanding the business, hiring new employees, or launching a new product or service.
Take advantage of discounts
Suppliers and vendors often offer discounts for early payment, and a working capital loan can provide the cash needed to take advantage of these discounts and save money in the long run.
Improve credit score
Timely repayment of a working capital loan can help improve a business's credit score, making it easier to secure future loans and financing.
Maintain control and ownership
Working capital loans do not require collateral, meaning that business owners can maintain control and ownership of their assets while still accessing the cash they need.
Overall, a working capital loan can be a valuable tool for businesses looking to manage cash flow and meet short-term financial obligations while also providing the flexibility to pursue growth opportunities. However, it is important to carefully consider the terms and interest rates of any loan before borrowing to ensure that it is the right choice for your business.
Ways to Use a Working Capital Loan to Grow Your Business
We’ve rounded up the top ten ways to use a working capital loan to grow your business!
- Purchase inventory: A working capital loan can be used to purchase inventory in bulk, which can help you take advantage of bulk purchase discounts and lower your cost of goods sold.
- Hire employees: A working capital loan can help you hire additional employees to increase your production capacity or expand your sales team.
- Invest in marketing: You can use the funds to invest in marketing campaigns, such as social media advertising, paid search ads, and email marketing, to increase your brand awareness and drive more traffic to your website.
- Upgrade equipment: If your business relies on specialized equipment, a working capital loan can help you upgrade to more advanced machinery that can improve your efficiency and productivity.
- Expand your physical location: You can use the funds to expand your business by renting or buying a larger physical location, such as a new warehouse, storefront, or office space.
- Launch new products: A working capital loan can help you develop and launch new products, such as a new line of clothing or a new software product, which can help you grow your revenue streams.
- Increase your online presence: You can use the funds to improve your website design, develop a mobile app, or invest in search engine optimization (SEO) to improve your online presence and reach more customers.
- Pay off debts: You can use a working capital loan to pay off outstanding debts, such as credit card balances or vendor invoices, which can help you improve your credit score and lower your interest rates.
- Offer discounts: A working capital loan can be used to offer discounts to your customers and help off-set the cost, which can help you attract more business and build brand loyalty.
- Expand your services: You can use the funds to expand your service offerings, such as offering new consulting services or adding a delivery option for your products. This can help you attract new customers and increase your revenue streams.
Fundid Recommendation: We're partnering with Accion Opportunity Fund (AOF), a non-profit financial support system that provides business owners – predominantly entrepreneurs of color, immigrants, and women - with access to capital, networks, and coaching.
AOF working capital loans are ideal for small businesses and sole proprietors that meet the following criteria:
- Annual revenue of at least $50,000
- Located in all U.S. states except Montana, Vermont, Tennessee, North Dakota, South Dakota, and the District of Columbia
- 570+ FICO credit score
AOF has support staff available to help in Spanish and English 7 days a week, 8 am - 8 pm, to guide you through the full process, from application to funding to post-loan approval.
How to Choose the Best Lender and Secure the Right Working Capital Loan
When it comes to choosing the best lender and securing the right working capital loan, there are a few key factors to consider. Here are some steps to follow:
Assess your business needs
Start by evaluating your business's financial needs and determine the amount of working capital you require. You should also identify the specific purpose of the loan, whether it is to cover payroll, inventory, or other business expenses.
Research potential lenders
Look for lenders that specialize in providing working capital loans to businesses in your industry. You can start by researching online and checking reviews from other business owners. Also, consider reaching out to other business owners in your network for recommendations.
For those who qualify: One lender we partner with (and love!) is the Accion Opportunity Fund. They offer loans in a range of sizes as well as educational resources, coaching, and support networks for small business owners.
Compare loan terms and fees
Once you have identified potential lenders, compare the loan terms and fees to find the best fit for your business. Look for lenders that offer competitive interest rates, flexible repayment terms, and low fees.
Check the lender's reputation
It's important to choose a reputable lender with a good track record of providing quality service and support to its customers. Check the lender's ratings and reviews from other business owners to see if they have a history of delivering on their promises.
Gather necessary documents
When you apply for a working capital loan, you will need to provide documentation to support your application. Gather financial statements, tax returns, and other relevant documents to make the application process as smooth as possible.
Apply for the loan
After you have chosen a lender and gathered the necessary documents, it's time to apply for the loan. Follow the lender's application process and provide all the requested information to ensure a smooth and timely application process.
Review and accept the loan offer
Once you receive a loan offer, review the terms and conditions carefully before accepting the loan. Make sure you understand the interest rate, repayment terms, and any other fees associated with the loan.
By following these steps, you can choose the best lender and secure the right working capital loan for your business.
Using the Right Financing Option for Your Business's Needs
Finding the right financing option for your business is essential for its success. There are many options available for small businesses, ranging from traditional bank loans to alternative financing solutions. It is important to understand the different types of financing and find the best option that meets your business's needs.
Understanding all of the available options is key to finding the right solution for your business's needs. At Fundid, we are here to help! Explore our marketplace of vetted small business lenders who are ready to support your business growth. Whether you are looking for a working capital loan, crowdfunding loan, or even business grants - you'll find everything you need in our free platform.