Practical working capital alternatives include merchant cash advances and commercial loans as well as reducing credit card processing costs. In order to give borrowers a concise explanation of the problems which need to be anticipated, we are providing a series of six-word descriptions about working capital management options. Additional small business finance illustrations can be found in separate reports that include “seven words describing commercial real estate loans”. Short term business financing has become an increasingly critical topic for small businesses during the recent bank lending crisis because even the most successful businesses need an effective source for short-term funding.
“Avoid a long and winding road” is the first illustration of six words to describe working capital. Determining if financing is actually available from the lender in question is the most significant issue referred here. In the current lending climate, it has become an unfortunate reality for finance applications to take several months only to find out that funding is declined. Owners should be prepared to watch for similar signs because such unnecessary delays have become so common. In reality this process should be finalized in three weeks or less, and it should be possible to determine within just a few days if funding is feasible for a specific need.
As a second observation, “banks are not an effective solution” for almost any working capital situation. Many banks in every region of the country are routinely reducing or eliminating lines of credit. Even though commercial loan activity for banks continues to decline steadily, most bankers have continued to state that they are providing normal levels of lending. The lender willing to provide the funding is increasingly unlikely to be a bank whether a small business needs a traditional business loan or a merchant cash advance based upon credit card processing activity. Precisely because bank loans for small businesses have become so hard to obtain, it has become common to hear phrases such as “thinking outside the bank” and “business loans without banks”.
The third description is “working capital management must be improved”. Because other forms of lending such as commercial real estate loans have also been reduced or eliminated by so many banks, business owners will discover that working capital options now assume a higher priority. If a commercial mortgage cannot be refinanced to provide needed funding, short-term financing will become a mandatory “plan B” in most cases. This can result in unexpected improvements such as the real possibility of reducing credit card processing fees when obtaining merchant cash advances.
Because there are so many potential reasons for borrowers to be confused by recent lender changes, the last example of six words describing working capital finance is “working capital experts will be necessary”. The use of finance experts would be a prudent step even without the current banking problems. When borrowers are also asked to deal with evaluating both new funding sources and new working capital options, finding a business financing expert to help should be a practical solution.
This overview is one of several analyses about commercial loans and business banking problems. This report was designed to produce a concise explanation of current cash management issues with a simplified approach by describing working capital management difficulties in six words. As suggested in the analysis above, the entire process should be more effective for small businesses when major business finance obstacles are both understood and anticipated even when there are substantial difficulties to be expected with most current efforts to obtain working capital.