Business financing: Are you ready for more credit?
When a business plan calls for more cash, financing can allow for major capital investments to grow or run your business.
When your business plan calls for more cash, financing can give you the control to grow or run your business, even if you already have credit. Here are some of the key needs for which to consider more financing.
1. Expansion mode
What opportunities are you leaving on the table? Perhaps you could work more efficiently with another vehicle in your fleet or better equipment. Maybe it's time to buy a larger space or a second location.
Outline exactly what you hope to accomplish with your expansion and determine whether the increase in revenue will cover the debt payment if you're approved for the additional credit. Seizing business expansion is a great opportunity, and when you're ready to expand, there are many credit options a small business owner may consider for various needs.
2. Cash flow
Regardless of businesses stage, a steady, positive cash flow is essential for business success. Businesses that don't have enough cash on hand or positive cash flow might be unable to finance purchases or maintain day-to-day operations. Even if you have the funds, it could be risky to utilize these cash reserves or other current resources to fund other business needs. Seeking different business financing options may allow you to meet new or growing business obligations.
3. Capital expenditures and working capital
The type of credit product you need will depend on your business goals. They will generally fall into two broad categories: capital expenditures and working capital.
Capital expenditures are for one-time costs and cover major purchases such as a vehicle, real estate, equipment, or renovations and improvements. Generally loans are used for these types of purchases that have fixed terms that range anywhere from one year for equipment to 15 or 30 years for real estate.
Working capital generally comes in the form of lines of credit or credit cards. These products are more flexible and are generally used to help a business manage short-term cash flow. For instance, working capital can help you cover payroll or pay vendors when customers are slow to remit invoices. It can also be used to make smaller purchases and cover everyday expenses.
You may need one type of financing or a combination of credit products. For instance, a business looking to hire additional employees may want a line of credit to bridge expenses in the short term, but may also request a loan to acquire more office space and equipment to accommodate the new employees.
If you're handling your current credit responsibilities well and are ready to expand, you might be ready for more credit. It may be the best way to cover major expenses while keeping cash flow stable and predictable. While there are associated costs with credit, they should be balanced against the possible opportunity cost of not growing your business.
Learn how to strike the right balance between business opportunities and managing your cash flow.