Taking Advantage of Short-Term Financing for Working Capital
As a business owner pushing for success in this competitive world, you know that maintaining cash flow can occasionally be difficult. From paying invoices and employees to acquiring new assets for your company, there are many liabilities to account for on a day-to-day basis, and sometimes your liquid assets aren’t up to the task.
Enter: working capital finance. Short-term financing has a lot of benefits to offer you as a business owner, especially when it comes to maintaining cashflow as a way to stabilise and expand your business. You just need to know how to use it properly.
For this blog post, we’re unpacking how you can take advantage of short-term financing as a way to have consistent working capital, the benefits of doing so, and a few tips for applying your working capital finance effectively.
The Problem: Maintaining Consistent Cashflow
We don’t have to tell you that cash flow is the lifeblood of your business. Without a consistent source of liquid cash flow, even the most profitable companies can struggle when they have everything tied up in assets.
Issues crop up daily, like covering operational expenses, taking on new projects, or investing in unexpected growth opportunities when they make themselves known. That said, cashflow shortages are not just common but expected, especially for businesses that have to deal with seasonal fluctuations or long payment cycles.
For instance, you might have large invoices waiting to be paid by your clients, but in the meantime, you still need to cover everything from property rent to stock purchases. It’s even more frustrating when an opportunity to expand comes up, like a bulk order from a major client, and the capital you need to fulfil that order is tied up in unpaid invoices or expensive pieces of machinery.
This is where short-term financing can help to loosen up some working capital.
The Solution: Working Capital Finance
What is Working Capital Finance?
In short, working capital finance can give you the breathing room you need to navigate these cashflow challenges without missing out on those vital opportunities to expand. These are a bit different from long-term business loans, which are usually put to work covering major investments like property or equipment (although there are short-term financial options for those, too).
Instead, short-term financing for working capital is meant to bridge the gaps when money is tight, but your business needs to keep running. You’ll encounter this financial option in a variety of forms, from business overdrafts and invoice financing to standard short-term business loans. While there might be more specific applications for some of these types, the overarching goal is to ensure you can keep things humming along easily.
The Benefits of Working Capital Finance
There are many benefits to choosing short-term working capital finance. You’ll notice improved stability in your cash flow, greater speed when responding to growth opportunities, and more flexibility with your day-to-day work.
But one of the most significant benefits you’ll notice with this style of financing is its short-term nature. While long-term business loans can build up significant interest, short-term loans like these are weighted against your existing financial situation, so you can only access what you can feasibly pay off in the short term.
This ensures that you’re not adding anything unmanageable to your long-term liabilities, as those can actually do more harm than good.
How to Best Apply Working Capital Finance
As is the case with any financial investment to do with your business, getting the most out of your working capital finance requires you to use it strategically. This is not meant as a long-term solution to ongoing cashflow problems, which can be a sign of deeper needs within your business.
Rather, it’s better to use this kind of short-term financing to seize opportunities that come up or to bridge unexpected financial gaps. Some of the best ways to apply working capital finance include:
- Bridging the gap between invoices and payments.
- Seizing time-sensitive opportunities.
- Covering seasonal slowdowns (which you can plan for using past data if you have it).
- Handling unexpected expenses, equipment repairs, or sudden increases in demand.
The most important thing to remember is that you must always have a repayment plan in place. Your financing should always align with only what you need and can easily repay once your cash flow kicks in again, rather than relying on it as a long-term crutch.
Take the time to assess your needs against your financials and establish whether this is a good move for your current circumstances. If it is, then all you need is the right partner to supply your newfound cash flow.
Open up your cash flow with working capital finance from GVK Finance.
We’re dedicated to empowering businesses like yours across New Zealand with the financial tools they need to thrive. Our short-term financing solutions are designed to provide you with the flexibility and support you need to compete in today’s business environment.
Ready to expand? Get in touch with one of our finance experts today to unlock your business’s full potential.