3 Core Business Loan Components

3 Core Business Loan Components

Most business owners looking for financing don’t have time to research and learn everything they may need to know about the process. The reality is that most small business owners are quite busy running and managing their business. Getting help on the essentials is a good idea, however, especially if this is your first foray into the business loan process.

Preparation is the key to successfully navigating the maze of business loan applications. According to the U.S. Small Business Administration (SBA) you should be prepared to answer typical questions your lender will ask:

  • Why are you applying for this loan?
  • How will the loan proceeds be used?
  • What assets need to be purchased, and who are your suppliers?
  • What other business debt do you have, and who are your creditors?
  • Who are the members of your management team?

So what are the core components of a business loan? Here is a brief overview to help you understand the essential terms that describe these core components.

The Essential Elements of a Business Loan

1. Principal
The loan principal is the actual amount of money you have borrowed and hasn’t been paid yet. A simple example might be illustrated this way:

If you borrow $10,000 to purchase a car, that amount is your initial principal. After you have made your first payment of $500 on the principal amount, the remaining principal would then be $9,500. Keep in mind that the principal is only the amount loaned to you and does not include the interest charged on the principal.

Your loan principal determines how much interest and fees will be calculated on your business loan. Interest and fees are usually shown as a percentage of the principal and are the next two components we’ll look at.

2. Interest
Interest can be best understood as the amount of money a borrower pays the lender in exchange for the privilege of using their money. Interest is typically given as a percentage amount, for example: 10 percent. There are two types of loan interest to consider:

Simple interest, which is determined by multiplying the interest rate (10% in our example) by the principal over the number of periods of the life of the business loan. In other words, a $1000 loan that is to be paid back in one monthly payment would incur a simple interest charge of $100.

Compound interest, which requires paying interest on top of the interest already owed. A simple illustration would be if you borrowed $100 on Monday with 10% interest, compounding daily. If you repay the loan in full on Tuesday, you’ll owe $110. However, if you repay the loan on Wednesday, you will owe $121, that is: $110 + ($110 x 10%).

Keep in mind, too, that the larger the number of compounding periods, for example monthly versus annually, the higher the compound interest amount will be.

3. Fees
Fees on business loans can be charged in two different ways.

Fees charged upfront or at “origination” are simple, one-time fees that your lender will charge to cover the cost of evaluating and originating your loan. Be sure to ask about and be very clear what upfront fees you will be expected to pay. All lenders are not created equal and some lenders add additional fees.

Ongoing fees are incurred during the life of your loan or when you pay it back. Many lenders also charge a prepayment penalty fee to discourage borrowers from paying off their loan early. A prepayment penalty allows the lender to earn more money on interest by encouraging you to pay off the loan over the full loan period.

Being Prepared Is a Must

Now that you have a good understanding of the components of a business loan, you can move forward with finding a good lender. And once you are ready to look at loan offers, there is one more component that brings together all the others for any loan you’re considering. It is the Annual Percentage Rate (APR), and a good lender will help you calculate it and explain its significance.

Business Strategy: The Commander's Intent

Business Strategy: The Commander’s Intent

A common frustration among small business owners is the lack of execution or implementation of their business strategy and objectives. In fact, they may have clearly articulated their vision for their business – their Big Hairy Audacious Goal – as James Collins and Jerry Porras put it in their 1994 book Built to Last: Successful Habits of Visionary Companies. But too often they feel stifled when it comes to seeing their stated business strategy come to pass.

And they’re not the only ones who see it; their employees do, too.

Business Intent & Your Mission

Make it so. – Captain Jean-Luc Picard, Commander, USS Enterprise

There is a planning concept that is used in the military commonly referred to as “Commander’s Intent”, or CSI. It is the idea that the commander, be it a General, Admiral, or even a lower echelon officer in charge of a particular operation, will articulate a high-level summation of the intended operation. In a business context it is the equivalent of the owner’s Vision Statement or business strategy statement.

Wikipedia has an entry which explains it this way:

Commander’s intent (CSI) plays a central role in military decision making and planning. CSI acts as a basis for staffs and subordinates to develop their own plans and orders to transform thought into action, while maintaining the overall intention of their commander. The commander’s intent links the mission and concept of operations. It describes the end state and key tasks that, along with the mission, are the basis for subordinates’ initiative. Commanders may also use the commander’s intent to explain a broader purpose beyond that of the mission statement.

So far, so good.

The “commander”, the business owner, writes out a business strategy statement and imparts this vision to his leadership team, his management team, and his staff. Everyone is inspired, excited, motivated and ready for something great to happen.

Time goes on.

A few initiatives are launched. Some processes are developed. Maybe a few new hires or capital expenditures are made. A little traction, a little activity, and then life gets in the way. Customers need to be taken care of. Things happen. But the main thing – the Commanders Intent – falls by wayside.

And time goes on.

Business Strategy vs. Business Planning

The commander’s intent was based on good intentions, but something was missing between developing a strategy for business growth and the actual tools, resources and processes for making the intent a reality.

There was no plan.

The business strategy was there. The vision was clear. The troops were on board. But no “battle plan” was written down and no tasks were delegated and scheduled. So nothing much got done.

And the troops got demoralized and disenchanted. The management got frustrated. And the Commander is not happy.

Plan your work. Write it down. Work your plan.

A business strategy is not as a plan. A plan is tangible. You can see it, touch it, read it, and pass it around. It takes your vision and your strategic intent, and makes it into a “project” and then breaks that project down into tasks. Big tasks, small tasks, short-term and long-term tasks. And even the task of managing and overseeing all the tasks.

A plan must be written down, but it must remain dynamic, not static. Just because you have a great battle plan doesn’t mean anyone told the enemy. And just because you have a superb strategic action plan for your business doesn’t mean anyone told your competitors. Or your customers, or vendors, or suppliers, or the weather, the economy, and so on.

You must be agile and flexible while retaining your “Commander’s Intent”. Even your business strategy and vision may need to evolve over time. But without a plan to guide you and your staff along the way, nothing will really happen.

Using Cash Flow Analysis To Find Cash In Your Business

Using Cash Flow Analysis To Find Cash In Your Business

It is said that cash is the lifeblood of a business. That is never truer than when your business is growing. The faster the growth, the more cash you need. Even if growth for you is getting better rather than bigger, it still takes cash. Cash flow analysis is a vital component that is often overlooked. But doing so may cost you money that you already have.

Using Cash Flow Analysis

Finding hidden cash in your business requires looking at your business in a different way. Accounts receivable, inventories, accounts payable, and other assets are can be seen as “pools” of cash that can be tapped if you need them.

Along with the pools, your revenues and your operating expenses are like “streams” of cash flowing through the business. Some of the streams drain your cash out, and others bring it in. The key it reduce the drain increase the flow

Where’s the Money In Your Business?

Cash hides in two places in your business—in your assets and in your operations. Finding hidden cash in your business requires looking at it in a different way. And you only need to understand a few basic ideas about cash flow analysis to find it.

Your accounts receivable, inventories, accounts payable, and other assets are essentially “pools” of cash waiting to be tapped if done properly. Your revenues and your operating expenses, on the other hand, can be looked at like “streams” of cash running through your business. Some of the streams are draining it although you can reduce the drain, while others are nourishing it and you can increase the flow.

In physics, momentum is a function of both velocity and mass. The larger an object is and the faster it moves, the greater its momentum and its power. And that’s the same principle of the cash in your business: the more cash you have at your disposal and the faster it moves through your business, the greater your financial momentum and the greater your cash power.

In other words, you can increase your company’s cash power when you release more cash from the “pools”, or stocks, of cash that appear on your balance sheet, or when you move cash through your business more quickly.

Identifying hidden cash in your business is not overly complicated. You just need to know where to look and have the right tools. Here are eleven places you might find unexpected reserves of cash:

  1. Accounts Receivable: By decreasing the amount of time it takes to get paid from your customers, you will increase the amount of cash you have on hand.
  2. Inventory: If yours is like many other businesses, you have excessive amounts of money tied up in inventory. Work on having “just-in-time inventory” and you will improve your cash situation.
  3. Equipment and Facilities: You may have money tied up in outdated, inefficient equipment. You could save money over time by simply upgrading them, or you may be able to free up cash by leasing back assets.
  4. Accounts Payable: You may be able to stretch out your payments to your creditors over a longer period of time, or take advantage of early payment discounts where possible.
  5. Debt: Sometimes, it makes sense to take out a loan for some expenses such as large purchases. But, if servicing the loans is especially costly, it can better to pay off those loans early. Get creative with your financing options.
  6. Revenues: Besides raising prices or selling more goods, finding ways to decrease variable or direct costs could increase the flow of money into your business.
  7. Expenses: Small reductions in your monthly expenses can add up to big improvements in your cash power. It pays to review these very carefully. Also, changing the way non-cash expenses are accounted for can help.
  8. Purchasing: Always negotiate the most favorable terms possible with your suppliers. Review your current contracts and look to improve the existing terms, if possible.
  9. People: Do you have the most cost-effective and productive balance of full-time, part-time or seasonal employees for your business operations?
  10. Business Systems: If you haven’t already, systematize your business operations. By becoming more efficient and productive you cannot help but to improve your cash situation over time.
  11. Bank Accounts: Talk with your bank and try negotiating more favorable rates or terms, and looking to take advantage of any special programs at your financial institution.

Know Your Financials

In practice as well as in your financial forms, cash is really an indicator of the way you run your company. If cash moves quickly and productively through your business, and generates a good profit, then your business is most likely working well.

If, on the other hand, your balance sheet is lop-sided with unneeded assets and crippling debt, is an indicator of issues that need to be addressed. And, if your income statement is bleeding cash and are hindered from making a decent profit because of unproductive systems, then that, too, must be worked on.

Fortunately, most businesses do have hidden cash they can access. By looking at these 11 potential hiding places we have described here, you may find unexpected sources of cash that you could really use.

Optimizing Your Financial Management Resources

Optimizing Your Financial Management Resources

You know that running and building a business isn’t easy. There’s much that goes into the work of each day, details to take care of, and all the important strategic work, like planning for growth, improving your product or service, and achieving a competitive position in your market.

The Value of Financial Management Systems

But taking time for essential strategic work when you have deal with the day-to-day details of your business can be a challenge. You can have that time, however, once you have effective financial management processes into place.

Financial management processes are “behind the scenes” tools that you use to move money into, out of, and around your business, and in the right place at the right time. You probably have some financial management processes such as a system for bank deposits, for ordering office supplies, and a payroll system, for example. And if they’re working properly, you probably don’t think about them.

This is where the value of financial management processes comes the forefront. Because these processes help your business run smoothly, they free you and your managers to concentrate on more strategic work. In addition, they create the link between your business activities and your accounting system.

Processes are Processes, Right?

What’s the difference between a financial management process and any other process in your business?

Most business processes, or systems, are focused on a result that your business needs in the key areas such as marketing, production, or fulfillment. These show up as advertising processes or your delivery systems, for example.

Financial management processes, on the other hand, involve the moving and controlling of money that all your other systems need in order to function. You can’t produce your product without money to buy materials and supplies. You can’t run your operation without money to pay the rent on your office space. You can’t advertise without money to place your ads. You can’t recruit new employees without money to search for qualified candidates.

Financial management processes support your other business systems by ensuring the right amount of money goes where it’s needed, when it’s needed. Consequently, it’s important to invest the time and effort needed to implement and maintain your financial management processes. With these systems in place, you’ll have a stable financial management foundation to support your future growth.

Managing Your Financial Processes

Keep in mind that, ideally, setting up financial management processes is not the job of the business owner or CEO. The truth is that, many business owners who set up their own cash handling, purchasing, payroll, and other systems find it challenging, at best. It can be somewhat like preparing your own legal documents, instead of hiring a lawyer.

If at all possible, your CFO should be responsible setting up your financial management processes, and your controller should then manage them. However, if you don’t have a CFO or even a controller, it’s wise to hire an outside expert such as a CPA, bookkeeper, or other financial consultant who has experience setting up these systems. It’s an investment that will easily pay for itself in the long run.

However, as the owner or CEO, you still have responsibilities for your financial management processes. It’s your job to give direction to your CFO about the type of financial management processes you want and to make sure that the systems that are in place are effective, well documented, and are helping you move the company closer to your vision for the business.

Delegation is not the same thing as abdication. In other words, while it is not your job to create and set up your processes, it is your job to determine the results you want and work with your team to make it happen.

As the business leader, it’s your job to set the expectations for how the financial management processes should run and to provide oversight of those systems.

Financial Processes Basics

No two financial management processes are exactly alike, but these fundamental practices will help ensure security and accuracy throughout your business. Here are some general guidelines you should be aware of when setting them up:

1) Make sure your source documents are accurate. Since your source documents are the “input data” for your accounting system, they must be complete and accurate. Otherwise, the errors or omissions will end up in your financial reports, creating false perceptions of your business health and progress – and you won’t be aware of it. You should automate the creation of source documents and store the information digitally. If they are not already, have your CFO and controller digitize your source documents when they set up your financial management processes.

2) Always have at least two people involved with financial processes. Two sets of eyes improves accuracy and reduces the likelihood of omissions and mistakes. Separate the approval for spending money from the actual money-spending activity, and the recording of sales from the deposit of money. If you don’t have a CFO or controller to act as a second pair of eyes, hire a third-party provider to help.

3) Use a business checking account to pay all company expenses. Never use cash or personal funds. Your company’s checking account is an effective financial control system that provides you with an automatic record of what happened to your money. While it’s common for business owners to mingle their personal expenses in with the business expenses, don’t do it!

Personal items paid for out of business funds impact the performance of your company. Many poorly performing companies are that way because the business owner is draining company funds for their personal needs.

4) Ensure that all data is forwarded to the accounting system. Your financial management processes become far less effective if the forms or other documentation generated are lost or misdirected. Digital document management systems, or ERP software, can automatically route information to the appropriate places, reducing time delays and the opportunity for human error. If you do use some paper documents, be sure everyone knows the routing process and timeframes for getting information to your accounting system.

5) Document your financial management processes in writing. The written documentation of your systems is what holds your entire operation together. Or it should be. If you’re dependent on “word of mouth” to make sure that people are following your systems, it will never be optimally efficient. Verbal directions are unreliable. And subject to forgetfulness, lack of clarity, misunderstanding, and misinterpretation.

Good documentation prevents your business from becoming overly dependent on a single employee. For example, if you would find it impossible to replace your CFO, controller, or bookkeeper because no one else has any idea what they do, you have a serious problem. Documenting processes and procedures in writing will ensure the success and health of your company.

Financial Management & Your Future

Once your processes are in place and working effectively, they should run almost seamlessly, behind the scenes. You won’t need to think about them on a daily basis. Instead, the reporting and monitoring systems that have been set in place will keep you apprised of your financial health. Ideally, you’ll be able to rely on your processes to allow you and your managers to focus on other vital aspects of your business.

With your financial management processes in place, working with your accounting system, you will be able to have accurate information when you need it, and put your time and attention towards more important matters like growing your business.

And that is where your time is the most valuable!

5 Smart Ways To Invest In Your Own Business

5 Smart Ways To Invest In Your Own Business

It’s often said that “You have to spend money to make money.” While there is a great deal of truth to that maxim, spending money does not always bring a return and – if done without forethought and a strategy – it can mean the difference between a growing business and looming bankruptcy.

However, there are other not-so-obvious ways an owner can – and should – invest in their own business.

Five Strategic Business Investments

No matter where you are in the life of your business there are certain items and services that you should invest in if you have not already. In order to grow your business, you do have to put some money into it. Here are five growth investments you should make in your business.

1) A Professional Website

Whether or not you rely on inbound leads to sell your products or services, your company’s website is your “storefront” on the Internet. It is your company’s first impression for a new visitor. In fact, so much hinges on the look and functionality of your website, it should rank high as an investment priority.

When first-time visitors land on your site, numerous studies show that it only takes seconds for them to decide stay and browse, or simply move on. Although you can get by with a low-budget website, working with a professional web developer to create a custom site is well worth the investment. And while it can be costly, you don’t have to spend tens of thousands of dollars to make a good impression.

2) Effective Marketing Efforts

Today the foundation and backbone of an effective marketing strategy is content. High-quality, relevant, and consistent content is the key to attracting, winning and keeping customers and clients. But achieving these objectives with a content marketing strategy takes time and expertise. And it won’t happen with a few blog posts.

One of the best solutions for this challenge is to hire a local marketing agency to manage and execute your Internet marketing strategy for you. Because a marketing plan can be custom fit to your business size and your particular needs, the cost to you for outsourcing can be comfortably affordable.

3) Additional Staff

Far too many business owners remain tied to low-level tasks that require time, but minimal skill sets. The problem is that they and their managers are far less than effective, and their collective productivity suffers. The day-to-day administrative tasks of running the business continue to take their valuable time away from other more important projects.

Being a strategic business owner means knowing when it’s time to hire administrative staff to free your management team to focus on actually building the operation. Any tasks that could reasonably be done by a lower level employee are tasks that high salary managers shouldn’t be doing. In addition to hiring staff, you should also consider outsourcing some work such as bookkeeping, payroll, or call center. Investing to free up more time in your day is always a good choice.

4) Bookkeeping and Accounting Services

Speaking of outsourcing, making use of an off-site bookkeeper and professional accounting service can revolutionize your business. While you may have already taken this step and have a CPA and a trained bookkeeper, are you really fully invested in the potential benefits these professionals can offer?

You should consider hiring a certified public accountant not only for your annual tax needs, but for the ongoing advice and expertise that a CPA focused on small businesses can offer. When your taxes are managed by a qualified professional, you can be assured you’ve filed the right deductions, your taxes are paid on time and you won’t be surprised later with an unexpected tax bill. In addition, having a third-party insight into your financial needs and strategy is well worth the added investment.

5) A Coach or Mentor

Every business owner needs a coach or mentor. A professional coach can provide wisdom, direction, accountability and motivation that is often absent for most business owners. The opportunity to tap into their knowledge, experience and connections is worth the investment. When engaging a business coach, be prepared to commit for a reasonable length of time. Real change and progress cannot happen in a month.

Finding a business mentor is an invaluable asset and investment of your time. If you are fortunate enough to have a friend or colleague to act as a mentor, all the better. And while you won’t necessarily invest money into the relationship, you do need to invest your time in order to get the most “return on investment.” An effective mentoring relationship is a give-and-take arrangement. Be willing to offer your own skills and experience to your mentor, as well.

Business Investments Come In Different Forms

The truth is that investing in your business doesn’t have to cost you huge amounts of capital. But investing in tools and services that provide you with needed information, effectively promotes your product, and helps you and your organization be more productive is money well spent.

Creating Your Business Vision With Your Budget

Creating Your Business Vision With Your Budget

As a leader with a vision for your business you need a budget to plot your financial progress towards it. Budgeting helps you understand whether your vision is feasible or not. And it helps you plan the steps you need to take towards achieving it.

A Budget Supports Your Vision

For most business owners budgeting can be at the top of the list of things they don’t like to do. For them, budgeting properly is a pain. But this is usually the result of many experiences of trying to balance it, or forecast, to the penny.

Yet, while accuracy matters, what’s far more important is getting in the habit of routinely thinking about what’s up ahead operationally that will affect your finances. Getting into the routine of forecasting, then reconciling your forecast to your actual results, will build the connection between your business finance and leadership dynamics.

The Two Types of Budgets

The most common budget is the operating budget. It is typically used to forecast and track a company’s operations and is used alongside the income statement with net profit as the budgeted bottom line. The operating budget should sync well with your income statement, and your accounting system is almost guaranteed to provide you with the financial information needed for tracking and reviewing your budget. The operational budget is what most people are familiar with.

A capital budget is probably less familiar, on the other hand. This type of budget is used to track spending and depreciation relative to large capital expenditures, such as equipment and real estate purchases. It helps businesses determine their return on investment for these purchases.

Because these types of non-operating expenses typically don’t show up on your P&L, you can use a capital budget to plan for the cash required for the expenses that only show up on your balance sheet.

Businesses that forecast losses can also use capital budgets to track negative cash flow requirements. And start-ups often use capital budgets since they typically make a number of major investments during the first few years of operation.

While your own company will need an operational budget, your CFO, controller or even an outsourced accountant can help you decide if you also need a capital budget.

Four Steps for an Effective Budget Process

Budgeting isn’t something you just do once a year – or, at least, it shouldn’t be. You should schedule planning and monitoring cycles on a regular basis. These four steps explain the process you can follow and suggests which position in your company should be responsible for each task:

  1. Set up the budget process. At the very beginning, you’ll have to decide on a budget schedule, categories, document formats, and who will be responsible for what. This is a management task that usually falls to the CFO, your controller – or both.
  2. Plan and forecast. The leadership team, which is the CEO, or owner, the CFO, and any key managers, should handle this step. In every budget cycle, you’ll begin by planning and forecasting to build and guide your business in the following months. Construct your business plans using the budget numbers against which you will track your progress. You should conduct formal planning, forecasting, and budgeting sessions regularly — preferably quarterly or at least annually. Keep in mind that your budget forecast will not reflect the realities of your business unless you continuously fine-tune and adjust it as part of your ongoing monthly reviews.
  3. Monitor and report. The controller will use your accounting system to gather and organize your actual results, and create monthly budget variance reports that indicate where actual results differ from your plan and by how much they differ.
  4. Review and manage. The leadership team studies the controller’s budget and variance reports for insights on how to improve the business, spot problems before they become serious, and maintain a strategic picture of your business. In addition, you should review and confirm your budget forecast assumptions and revise them as necessary. Review your budget and variance reports with your key employees, make management decisions based on those reviews, and then execute those decisions.

Budgeting With Your Future In Sight

Improving your business budgeting process to incorporate your vision is a smart strategic move. Money is not only the fuel for your business today; it is the building material of your company for the future. As your business grows, approaches that sufficed in the beginning may not be sufficient going forward.

Your budgeting and financial planning processes must grow with the needs of your business today, and for the vision you have for the future.

How To Lower Your Business Expenses

How To Lower Your Business Expenses

The start of a new year is one of the best times for a business owner to examine their budgets and find ways to both try and increase revenue and lower business expenses. Oftentimes, cutting a little bit in a few areas can have just as much impact as cutting a lot from one or two budget items.

With these considerations in mind, we’ve put together a list of nine ways to trim business expenses from your 2016 budget and make your year more profitable:

1) Reduce Energy Consumption

Reducing energy consumption can add up to big savings over time. Make sure computers and other office equipment are set to go into low-power modes after working hours are over. Install energy-efficient lightbulbs, and (if possible) utilize hybrid engine vehicles if your business requires lots of driving or deliveries.

2) Work From Home

Working from home is becoming increasingly popular not just for its convenience, but also for its correlating reduction in businesses expenses. Money saved by not having to pay for office space and all the associated costs that come with it can be saved or reinvested in other areas.

3) Take Advantage Of Early Payment Discounts

If your business relies on suppliers, make a note to see if any of them offer a discount for paying invoices within a specified period of time. For example, some suppliers will offer discounts up to 2% if invoices are paid within 10 days.

4) Reduce Travel Expenses

Company getaways, conferences, and trade shows can be a lot of fun and beneficial to building your business — but they’re also expensive. This is a good time to re-examine your travel schedule (and budget) to see if there’s anything that can be skipped this year.

5) Look For Cheaper Office Space

Another benefit of the rising adoption of working from home is that in many areas it has created an abundant supply of office space with diminishing demand. For business that do need office space, this is an excellent time to shop around and see if a better deal can be had.

6) Buy Used Instead Of New

Desks, chairs, copiers, and many other core items that make up common business expenses can be purchased used rather than new. Find a few reputable office furniture dealers in your area and inquire about used inventory.

7) Pay In Trade

If you business is strapped for cash, or you’re just looking to shave costs any way you can, see if the products and/or services you want can be paid for in trade — by offering to exchange your product or service for theirs. It’s important that both parties feel the exchange is fair, but otherwise it’s a great way to save money.

8) Don’t Overstock Supplies

It’s easy to walk into big-box office supply stores and come out with a year’s worth of office supplies. It may seem like a bargain at the time, but you can reduce costs by keeping a closer watch on what you’re actually using and making sure only those items are replaced.

9) Cut Taxes

It pays to be diligent about documenting legitimate business expenses so that when tax season comes around, you can ensure that you’re getting credit for all the deductions you can. Work with a competent CPA and let them help you if you’re not comfortable doing it all on your own.

Working Smarter, Not Harder

Reducing business expenses often means taking a step back and carefully examining your existing processes and seeing if there’s room for improvement. As your business grows, things that worked in the beginning may not make sense anymore and end up costing more money.

Stay vigilant and keep an open mind about alternative solutions and you’ll find ways to save money you never expected.

3 Common Uses For Working Capital

3 Common Uses For Working Capital

At Premier Business Lending, we see and believe in the benefits of working capital loans for your business. Working capital is a short-term loan that is very flexible and offers a variety of financing options to help you achieve your goals.

There are many types of businesses that regularly utilize this kind of loan, and we’ve put together a list of three of the most common purposes businesses choose to borrow working capital.

1) Unforseen Circumstances

Sometimes things break, and usually it’s at the worst possible time. It doesn’t matter if it’s a vehicle, network server, or table saw — a working capital loan can help your business quickly recover from the loss and replace your broken equipment.

2) Inventory

Inventory is expensive, and often the only way to mitigate a portion of that cost is to buy in large quantities in order to receive volume discounts. What that means for you is a large upfront cost that may tie up a significant portion of your existing capital.

With a working capital loan, you won’t have to choose between buying inventory or paying bills, you’ll be able to comfortably do both. This will help your business to grow and won’t put unnecessary strain on your company’s finances.

3) Business Expenses

Do you want to attend a trade show to help promote your business? Maybe even have a booth at the event? Do you want to hire new employees or relocate to a new office? All of those expenses and many more can be prohibitive to a new or small business.

Once again, a working capital loan is a great way to finance large expenditures that you wouldn’t be able to afford otherwise. By enabling your business to buy the products and services it needs to grow to the next level, you can help secure your business’s future.

Do You Need Working Capital?

If your businesses is faced with one of the challenges mentioned above, consider talking to an experienced loan professional who can help you evaluate your needs and determine if a working capital loan is the best course of action for you.