6 Ways to use Working Capital Loans To Strengthen Your Business?
Jan 14, 2021
Running a business successfully is an art in itself. No matter how great your business idea is, you will not be able to realize that unless you have a firm grasp on your financial situation. You ought to have financial agility, accountability, and power to realize the available business opportunities. With an economic slowdown, there may be a risk of you running out of funds. Any extended delays in making payments at your end can ruin your hard-earned reputation in the market. This is where working capital loans for small businesses can offer you much-needed flexibility with your finances and allow you to conduct your operations as usual.
Essentials about Working Capital Loans
Delays in the recovery of your dues can happen due to a number of reasons ranging from delayed payments from debtors to unfavorable business conditions. But the crux of the matter is that you might eventually face a shortage of funds to meet your regular expenses. With the help of a working capital loan, you can efficiently supplement the financial strength of your business.
A working capital loan is a special type of business loan wherein a financial institution extends a credit facility to a business exclusively for payment of regular expenses. These loans are approved very quickly and come with a flexible repayment plan, providing much-needed respite during the times of need. The amount available, repayment tenor, and rate of interest vary according to your business profile and the policy of the lender.
How to use working capital loans to strengthen your business?
Well, availing a working capital loan is just one side of the coin. The other and most important aspect that you must focus on is how to use the working capital loan. Remember, it is still a loan and comes with an interest cost; hence your focus should be on optimal utilisation of the loan amount to maximize the benefits on offer. Here are some useful ways regarding how to use the working capital loan to strengthen your business: –
- Pay the bills: – Most vendors extended a certain credit period to their customers. But after the expiry of this period, they expect to receive their dues promptly. The situation is even more serious in case of credit card, utility services, and other statutory dues, as they start levying penal charges for delays. They are not concerned with the fact that your debtors are delaying their payments. In order to maintain your good relations with the vendors and avoid any adverse impact on your creditworthiness, avail a working capital loan for small business and honour your commitments efficiently.
- Pay salaries: – In order to keep your employees motivated to work hard, you must pay their salaries and wages on time. Any delays in payment of their dues can result in reduced productivity or higher attrition rates. To ensure that your team remains intact and keeps on putting their best foot forward, use the working capital loan to pay their dues on time.
- Purchase stock: – When you purchase any product in bulk, you are bound to get lower prices as compared to when purchased in retail quantity. This benefit is available for manufacturers as well as retailers where vendors offer deep discounts when bulk orders are placed. By lowering your purchase costs, you are directly improving your profit margins. Hence, use the working capital loan to stock-up on raw materials or inventory and enjoy better profit margins.
- Marketing Campaigns: – Every product or service enjoys higher sales during a particular time of the year. You can also maximise the potential for higher sales by investing appropriate amounts of money towards sales and marketing campaigns. You can start your marketing campaigns before your competitors and gain a head start over them in attracting more customers.
- Off-season period: – During the off-season, i.e. that period when your sales are at the lowest, your business might struggle to generate enough revenue to manage daily expenses. A working capital loan can save the day for you in such a situation, by allowing you enough financial flexibility to manage your expenses and retain the structure of your organisation without any need for dipping into your reserves or investments.
- Better employee benefits: – In order to stave off the competition and maintain an edge over competitors, you must invest in training and upskilling of the employees. Moreover, you also need to offer them better benefits and salaries. All this can be easily managed with the help of a working capital loan.
The utility of a working capital loan for small businesses can not be denied. There are some obvious benefits that are on offer, but you must remember that it is still a type of loan that requires you to serve an interest cost. So, borrow only as much amount you require and use it judiciously.