The Need for Food and Beverage Industry Working Capital Line of Credit

The Need for Food and Beverage Industry Working Capital Line of Credit
The Need for Food and Beverage Industry Working Capital Line of Credit

The food and beverage industry these days are facing some financial challenges. Often, for a company to stay afloat, there is an urgent need for a food and beverage industry working capital line of credit.

What Will the Working Capital Be Used For?

There are several key issues that companies in this industry must address. These are the issues which the lender of the line of credit must also be familiar with.

  1. The business tends to be seasonal and cyclical. There are peaks and troughs in the business cycle, and this means that sometimes working capital can be problematic because the revenue stream is not as strong. Lenders should also be aware of this as this affects loan payments.
  2. The need for research and innovation. The consumer public is affected by trends, and often new technology can spark a new trend that can provide an advantage for a company over its competitors. This is another area where working capital is needed.
  3. Labor costs are increasing. This is another drain in the cash reserves of a company in the food and beverage industry, because it is difficult to pass on the costs to the consumer public.
  4. Commodity hedging. Companies in this industry are reliant on the commodities market for their pork, cattle, and orange juice supplies. A lender who can provide expert insight on the matter can be invaluable.
  5. Devaluating inventory. Some products such as cars and gadgets tend to lose value over time because of technological developments. They eventually become obsolete. But in the food and beverage industry, the inventory literally has an expiration date. Lenders must be aware of this reality, and they must be flexible in their terms.
  6. Capital expenditures. Here is where working capital is absolutely necessary. Equipment must be maintained and repaired if the operations of a company are to continue.

Where to Get the Working Capital

So how can you get a food and beverage industry working capital line of credit? There are several methods recommended by financial experts. One, of course, is by obtaining a line of credit from a bank. This approach, however, can take a long time and approval is not always likely. In addition, the requirements can be very difficult. You’ll need an excellent credit history, and your financial statements should demonstrate several years of profitable business. You’ll also need to put up collateral as security for the line of credit.

Another method that’s gaining ground is factoring. With this option, you sell your invoices to the finance company and in return you get something like 80% of the value in advance to cover your operational needs. When your customer pays the factor in full, you get the rest of the payment after the factor has taken out its fees. The advantage of this approach is that your credit history is irrelevant and you can submit just the invoices that can cover your working capital needs.

Either way, the need for a working capital line of credit is crucial for your company to survive.

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