Every organisation needs business capital at one stage or the other during its growth journey. Working capital loans could be required to run day-to-day business operations, for payment of salaries and if the business is doing well, to expand premises. You might find plenty of naysayers who would advise against procuring business capital and thereby avoiding the debt trap. Avoiding working capital loans is sane advice, but sometimes this is only partially true. For instance, if your business is attracting more customers and you do not have enough space for your staff to sit and service them, then surely the lack of business capital should not act as a deterrent to your expansion plans.
Likewise, peak business season could be approaching and you will need to prepare in advance by stocking up enough raw material. However, if you don’t have enough business capital, then not taking working capital loans would translate into lost business opportunity. So, regardless of the caution to be exercised while taking working capital loans for your business, there could be compelling reasons in favour of actually applying for one.
Here we list seven top reasons why your organisation could need business capital and why opting for working capital finance to fulfil those needs translates to better business growth.
- For efficient cash flow management: This is one of the topmost reasons why small businesses seek working capital finance. Most small businesses have large customers as clients and payments from them are typically received after 90 days of product delivery. In case such payments are delayed, then the whole business plan of a small organisation goes topsy-turvy. Moreover, a small business does not get a similar long credit period from its suppliers. Therefore, any delay in receivables severely impacts the ability of a small business to keep future commitments on track. This is where opting for working capital loans makes so much more sense.
- Business expansion: A small business typically begins its journey from small premises. So, when its business growth starts to accelerate, it might find itself short of space to accommodate extra manpower to service clients. Some businesses such as restaurants might need to accommodate extra customers within their premises. While the business gets increased revenues, getting business capital for bigger premises might still be a challenge. Here again, it makes sense to go for working capital finance and procure new premises for business expansion. Such a loan could be repaid gradually by taking a slice of the increased revenues. However, here’s a word of caution. You need to carefully calculate how increased business capital infusion is going to impact your bottom line. The increase in your business revenue should be sufficient to repay your working capital loans.
- Buying new equipment for your business: Here again, it makes sense to go for business capital infusion. Your business could have received a new order that might be impossible to fulfil with the existing set of machinery. So, you have to look at procuring new machinery as letting go of the new business opportunity would mean losing out to competition. Likewise, your IT equipment might have become obsolete and could be hindering the productivity of your staff. Such situations merit the need for business capital infusion and the increased business opportunity that you tap using this capital could in turn be used to repay the working capital loans over the next few months.
- Spending on marketing and sales initiatives: A business needs to extensively reach out to its customers in order to generate revenues. Marketing its products and services through various media plays a key role in getting the message across. Nowadays, social media plays a major role in reaching out to your target audience. Therefore, to help promote your business, you need to immediately start devising relevant marketing campaigns. This is one major activity that can’t be postponed regardless of the current state of revenue. You should go for business capital infusion for your marketing campaigns and this could be a moderate amount spread across several months, depending on your marketing strategy.
- Replenishing your inventory: Certain businesses are periodic in nature. They have a peak season each year. To prepare for the spike in business demand, they need to prepare well in advance. One of the key requirements for manufacturers is to maintain a strong inventory of raw materials. This would help them to manufacture goods before the season begins and when the demand picks up, they can focus on sales and deliveries. Similarly, e-commerce companies should also maintain the required inventories with an eye on customer demands. When periodic sales take off, you should not be found wanting in delivering to customers.
- Hiring and training of new employees: Manpower costs have gone up significantly over the past decade. There are a lot of small businesses in India engaged in providing services and they require a lot of manpower to serve customers. Also, when businesses need to ramp up their services during peak seasons, the need for manpower increases. While a business should never let go of a new opportunity, they can take care of the increase in manpower costs through working capital loans. Most Fintech lenders would be willing to provide business capital which could be paid off later using profits from increased business revenue.
- Diversification of business and to cover unexpected costs: A new business typically starts small. However, with the passage of time, it might feel the need to diversify its offerings. Also, with a change in business rules and regulations, a small business could be left staring at the sudden expenses required for the up gradation of manufacturing equipment or IT software. While diversification of business activities is always welcome, these sudden and unexpected expenses might challenge your revenue. In such situations, businesses should not lose hope and instead look out for possible sources of working capital finance. Most Fintech lenders today understand the diverse requirements of small businesses and therefore, provide flexible loan products. Unsecured loans do not require any collateral and can be repaid even at one go without any pre-payment penalties.