Intelligent CXO Issue 6 - Page 43

2 . Request a deposit
There ’ s nothing more frustrating than a project coming to a halt due to a money shortage . Asking for an up-front deposit gives you working capital to cover costs for the duration of the project .
Deposits also minimise the chances of nonpayment . You can request deposits via email and have clients pay it to your bank account .
3 . SBA loans
SBA loans are loans that the Small Business Administration guarantees . Instead of offering these loans , the SBA reduces the risks for banks through a guarantee .
These loans are ideal for long-term working capital requirements . Although they provide a safety net for big projects , the approval process takes time and you have to meet strict requirements :
• You have to be in business for two years or more .
• You need a credit rating of more than 680 to show you can pay off the loan .
Nevertheless , they ’ re worth pursuing as interest rates are low and usually between 6 – 8 %. I say ‘ usually ’ because the SBA also offers disaster loans at lower interest rates .
4 . Invoice financing businesses get larger and larger lines of credit , when , in fact , they only need a little .
• Avoid financing new customers with revenue from old ones . Many small business owners use the revenue from a past customer to finance the next customer . If you do this often , you can quickly run into cash flow problems .
Key takeaways on working capital
Working capital is crucial for your day-to-day , funding your business growth and helping you out during tough economic times .
That ’ s why it ’ s vital to get to grips with it : Understand what it is , learn how to calculate it with the working capital formula and know where to get funding .
How you go about it will depend on your business requirements . You may need to speed up collection procedures , request an upfront deposit , apply for a short or long-term loan or use invoice factoring .
Whatever you decide , rest easy knowing you have working capital to grow during the good times and survive during the tougher times . x
Daniel Reiter , Editor-in-Chief , FreshBooks
You shouldn ’ t confuse invoice financing with traditional factoring . With conventional factoring you enter into long-term agreements , fees are high and they ’ re intrusive ( the provider contacts your clients ). However , with invoice financing , you sell unpaid invoices to a third party and get the cash immediately . You pay interest against the invoice value with interest rates starting as low as 2.5 %.
Working capital watch-outs
There are various lending practices you need to be aware of and sources of funding you should avoid that try to take advantage of a company ’ s working capital problems .
• Beware of hidden fees . Often the advertised cost of the funding is not the actual cost . Many lenders charge hidden fees such as subscription and inactivity fees .
• Avoid large lines of credit you don ’ t need . Make sure you don ’ t over-finance . Many
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