Temporary working capital

How SME working capital can contribute to economic recovery

For many businesses, the biggest challenge during the COVID-19 pandemic has been maintaining cash flow and finding enough capital to stay afloat.

Access to working capital will be the key to recovery for these businesses, especially smaller ones that have been subject to temporary closures or operational adjustments. More working capital flowing through small businesses means greater economic strength, both within local communities and for the country as a whole.

Here’s what small business owners need to know about working capital and the resources available to help them get it.

What is working capital?

Working capital is the amount of money a business has available for its operations. It is the difference between the assets of the business, such as cash flow and inventory, and the debts and liabilities that it owes, such as accounts payable. Sufficient working capital means that the value of the assets you own and the overall income of your business is greater than the cost of running your business.

The amount of working capital of a business is an indicator of its liquidity, operational efficiency, and short and long term financial health. Positive working capital gives businesses more flexibility to scale and invest in other opportunities, while insufficient working capital means a business will struggle to cover expenses such as rent, utilities, etc. payroll and inventory.

Importance of working capital for economic recovery

COVID-19 has forced businesses to slow down or shut down operations, drying up a much needed source of working capital. Supply chains operate slower, social distancing guidelines still limit the number of in-person customers a business can support, and some goods and services are simply not feasible as they were before the pandemic.

This problem for businesses has been compounded by the fact that many customers are not spending as much as they used to. Many consumers have been financially affected or lost their jobs due to the pandemic. With less income, businesses lose profits and as a result have less working capital to get by.

For these businesses to thrive again, they will need to find ways to rebuild that capital and maintain positive cash flow through the remainder of the pandemic and beyond. This, in turn, will begin to reverse the downward economic trend that accompanied the onset of the pandemic.

With more working capital, businesses can grow by hiring more people, opening new locations, or otherwise expanding their business. When a business makes more profit, it also pays more taxes to the government, which can be reinvested in the economy. The sooner businesses start up and operate at normal capacity, the faster the economy as a whole will rebound.

Working capital can help businesses invest in COVID-19 recovery

Working capital is not only important for keeping businesses afloat and supporting economic recovery. With access to sufficient funding, businesses can also invest in the technology upgrades and security measures needed to prevent the spread of COVID-19, thereby contributing to the overall pandemic recovery efforts.

Being seen as a business that prioritizes the health and safety of its employees and customers has the added effect of encouraging people to shop with you. To this end, your business may need additional working capital to cover expenses like these:

E-commerce and mobile ordering features

Many businesses have turned to online sales and delivery options to encourage customers to shop from the security of their homes. However, companies may have rushed to make this change without considering the broader user experience and the technology stack needed to support e-commerce. Businesses should consider investing in technology upgrades to improve and optimize their web and mobile shopping process, encouraging customers to continue ordering from them.

Personal protective equipment (PPE)

If you operate a service business where you interact with customers, or if your business has returned to the office and your employees are interacting with each other, you have likely invested in PPE such as masks, gloves and gowns. face shields for your Staff. Until COVID-19 vaccinations become more widely available and social distancing guidelines are relaxed, this will be an ongoing expense for many businesses in person.

Plastic barriers

Each state has different requirements for how businesses should operate during the pandemic. While not all areas need plastic barriers in stores and offices, it’s a good idea in general to install them (if you haven’t already) to keep your customers safe. and employees. These barriers provide another layer of protection for your employees during their shifts and give people peace of mind about their safety on your site.

Cleaning and disinfection

It’s more important than ever to clean and disinfect your business, especially with the aggravated health issues of cold and flu season during a pandemic. Working capital can ensure that you always have enough funds to restock your sanitizers, hand sanitizers, and other cleaning supplies, and to pay for janitorial services.

Can a Working Capital Loan Help Your Business?

If your business is struggling to make ends meet or just needs a little more money to invest in COVID-19 security measures and business upgrades, a working capital loan can. help provide those much-needed funds.

Often used as a flexible short-term financial solution, working capital loans can help businesses cover immediate and necessary expenses like rent and payroll until they can increase sales and pay them off.

Other options for obtaining working capital

Working capital loans are not the only financial product that can help you achieve your short and long term business goals. Here are some other options to get you started on the road to financial success.

  • Small Business Term Loan: A small business term loan allows you to finance yourself relatively quickly, to be repaid on a fixed schedule. This is a solid option for businesses that were operating successfully before the pandemic, but have been hit hard by the closures. A small business term loan can help you get the equipment and materials you need to quickly implement health and safety measures.
  • Business line of credit: A business line of credit allows you to withdraw cash of any amount (up to your set limit) whenever you need it. Once you pay it off, the funds are released so you can borrow again as needed. This is ideal for businesses that only need small amounts of money at a time, but on a recurring basis. If you anticipate needing continued, flexible access to financing in the coming year, a line of credit could be a great solution.
  • Bridge capital loan: If you need a fixed amount just to see your business for a short time, a bridging loan can keep you afloat while you wait for guaranteed income. The application process is relatively quick and easy, and you get funding instantly after approval. One downside is that the interest rates tend to be higher.
  • Equipment financing: Equipment financing is a leasing option that allows you to lease materials and equipment to build or expand your business. You can repay the loan on a regulated payment schedule. This is ideal for businesses in healthcare, construction, manufacturing, food and beverage, and other industries that require expensive machinery and equipment.
  • Invoice factoring: You can collect your unpaid invoices from customers and suppliers by “selling” them to a third party (the factor) for a fee. You will get 70% to 90% of the invoice amount as an advance to use immediately and receive the remainder (minus the factor charge) when the customer pays. Businesses whose customers cannot pay their bills due to the pandemic should consider this option, especially if they know the money will come later.
  • SBA 7 (a) Loans: A 7 (a) loan is guaranteed by the US Small Business Administration. It has no down payment, low interest rates, and long and flexible repayment terms. These loans are ideal for startups and small businesses that have been hit hard by COVID-19 and need funds for a variety of purposes.

How to get a working capital loan

Depending on the type of loan you are applying for and the lender you are working with, the documentation required to apply for your loan will vary. Here is the most common documentation you will need:

  • Your business plan
  • Bank and financial statements for the past two to three years
  • Income tax returns
  • Your Employer Identification Number (EIN)

Once you have all of these documents in order, you can submit a loan application to your lender. A good credit score and a personal financial summary will increase your chances of being approved for a small business loan.

SBG financing offers flexible financial products and lending options for small businesses that need quick and affordable access to cash. If you are a small business that needs financing to recover from the pandemic, contact an expert today to find out how to increase your working capital with SBG Funding.

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