Working capital required for growth can reduce your profits if you don't plan ahead
Your customer base is expanding. You need to purchase more inventory or hire more staff, or both. You definitely need working capital.
The easiest, fastest way to access working capital is to use your credit card, if you have available credit. Nothing could be easier - but - it could prove to be a very costly method of financing the growth of your business.
When you look at your financial statements the following quarter, you may find that your profit margins have diminished because of an interest expense, and your credit score has dropped because you may have maxed out on your line of credit. At that point you do not have the credit to make additional purchases or continue with the additional payroll expense.
The path of progress is halted and now you have to seek options that can be both expensive and time consuming. You have taken the wrong path.
There are much better options than using credit cards for the growth of your business. . However, they require planning.
My advice is simple - Do not wait until you need funds to request working capital from lenders, Ask for funding before you need it.
A line of credit for a growing business is readily available from your bank if:
1.) Your personal credit score is 680 or higher,
2.) You can provide the bank the documentation they need to support the loan request, including tax returns for two years for the business and,
3.) Your company's profit and loss statement has adequate profits to support the loan request.
The cost of working capital from a bank will be substantially less than credit card debt, and, you will only pay for the dollars that you draw down for the period they are outstanding.
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About the author
Marjorie Weber has been educating entrepreneurs and guiding them in their search for capital for the past 16 years: combining business training programs with one-on-one mentoring. Marj is currently the executive director of Primed2Grow, a Miami based consultantcy. Most recently Maj was a financial advisor for Florida SBDC at FIU. She was Chair of SCORE Miami Dade from 2010 to 2014. She also serves as an advisor to the Goldman Sachs 10,000 Small Business Program and the SBA Emerging Leaders Program and provides training for Veterans seeking an entrepreneurial path upon retirement from the service. She has facilitated workshops under the auspices of Miami Bayside Foundation, Little Haiti Cultural Center and .local banks. She commenced her career as a real estate investment banker in New York and Miami..She uses these long term relationships to assist her clients in accessing capital. She knows both the process and the people and has assisted in providing financing for hundreds of businesses in Miami Dade.