If you’re running your own business, at some point you will have a need for additional working capital. You may, for example, encounter some difficulties in navigating the business “waters” and perhaps your revenue and profits are taking a beating because of a recent crisis in your industry. You may also be thinking about growing your business, and for that you’ll need more working capital as well. But getting working capital for growing companies isn’t exactly easy these days.
So what are your options?
- Traditional bank loan. Despite what you may have heard, a bank must always be considered when you need money. This is especially true if you need money for a one-time problem, such as buying raw materials to fulfill a very large order or purchasing an expensive equipment that will enable you to offer new services.
Unfortunately, for many growing companies this option may not be exactly easy to get. You can approach your bank and make inquiries, but the loan application can be truly complicated and time consuming as well.
- Government loan. This can be just as hard to get as a traditional bank loan, and some say it’s even more difficult. In fact, you can expect the entire process to include a lot of red tape, since the government is involved. This has forced some companies to give up even before the their loan application is being evaluated.
But if you do get this loan, the benefits can be substantial. Government loans come with comparatively low interest rates, and they often offer very long and flexible repayment terms.
- Loans from friends and family. Who else would want you to succeed, but your family and friends? Some of these people do more than offer encouraging words. They may even offer additional funding. And when they do, their closeness to you may mean that the interest rates and the repayment terms can be very generous.
The problem with this option is twofold. One problem is that you don’t always have friends and family who are willing to lend you the amount you need. What if you need hundreds of thousands of dollars, or even millions?
The other problem is that if you are unable to repay the loan, you may be damaging essential personal relationships. This is the kind of situation that gave birth to the adage that friendships and serious business loans don’t mix.
- Credit cards. Some people use their own credit cards to get additional working capital. While this may be fine for a short-term need, the rather high interest rates don’t make this option ideal for long term needs.
- Adding a business partner. You can sell a percentage of your company for cash which you can use as working capital. This can bring in the money you need, but keep in mind that you are ceding future profits to someone else. In addition, you need to have a very clear agreement as to what your partner’s role will be in the company.
All these traditional methods come with their own drawbacks, which is why alternative methods for working capital for growing companies are becoming much more ideal.