How to gain additional working capital when your credit has taken a hit?
My company is at it's tipping point and getting ready to either skyrocket or implode, depending on lack of, or gain of working capital. My business is by nature, extremely slow in the summer, and ridiculously busy over the holidays. I've figured out how to extend my season, but need additional working capital for supplies, cushion on expenses, and ability to give my employees longer hours so that I can do the necessary face-to-face marketing.
The problem.... my credit has taken a hit from doing way too much on my own without enough funds. How do I get over this hurdle?
Mr. George Matyjewicz has advised all the options that are available for small or retail business. In case you have bulk buyers then you can discuss with them to spare some part of their credit line by issuing you SBLC ( Standby letter of credit ) for the period of year or what ever period possible. You must also take concurrence from your bank and they should be agreeable to extend the additional credit line to you against the buyers / third party guarantee through their SBLC. This is another option just in case it fits in your business profile.
Richard Stern-Suggest you make a seasonal Financial Plan,
1. Take to the Bank and see if they will provide a Credit Line
2. Prepare a Sales and Marketing Plan to support your request for funds.
3. If the orders are substantial research Purchase Order financing
I spent 20 years as an importer distributor and over 20 years providing purchase order funding mostly to importers/distributors. Crowdfunding is an interesting new development in providing working capital, but it may not provide you with enough funds or in a timely manner. Merchant cash advances may provide funds the quickest but with most you will be paying exorbitant interest.
If you have good credit, your gross margins exceed 25% and you are selling to business with good credit I recommend a combination of purchase order funding, that will fund the purchase of the goods( usually by letter of credit on a money center bank) and factoring that will buy your receivables when the goods are shipped, pay off the purchase order funder, and if your gross margin is sufficient provide immediate working capital to you.
Charges for Purchase Order Funding and Factoring while not inexpensive are not exorbitant -usually in the credit card range on an annual basis. The combined charge will probably reduce your gross margin between 5% and 8%. Unlike investors who always remain your partners, once your business is bankable at lower interest rates all future profits are yours.
Feel free to contact me for further clarification or contact information of purchase order funders and factors who would work with you.
Positive cash flow critical and you don't want to scale an unprofitable company. To complicate things, financing growth can be very tricky, which sounds like what you're experiencing.
There are non-bank business lenders and private investors that could help. The SBDC is also a great resource.
My only caution would be to make absolutely sure you're profitable before you scale and don't think borrowing money solves your problems without a rock-solid plan and the understanding that it's increasing your risk and complexity.
Personally I'm an advocate of debt-free business in most cases.
That said I have a couple resources I could connect you with if you'd like. PM me if you're interested.
Best wishes :)
Sound like financial problem or business problem?
The brutal fact is if the business is running with persistent cash flow problem, its issue lies not on the cash flow but the business itself. Will the expansion really help the business or kill it faster? If the new working capital injected help to expand business but haste the rate of death, I would consider not to look for new WK. You should re-look at your business model, whether it really run probably to generate real cash in long term, or you have been running a high overheads all the while without good cash flow control at the downtime.
Based on your description, your company should already pass startup phase, thus it is hard to understand a healthy company seeking working capital fund through non-banking source.
Maybe you can evaluate the state of company you are in, whether you are in the healthy growth path or move out of track. If the business move out of track, you need a turnaround strategy to pull your business back on track instead of seeking money. If you need help, I suggest you get some help from some very good consultants around your location to help you to turnaround.
There are two ways to do this:
1. find an investor willing to loan you some money with warrants to convert it into equity or a similar situation; or
2. Seek crowdfunding on a site to raise some money by giving a discount or a T-shirt or something for each payment of $X like $500.
Giving up equity means you answer to someone (usually without your ndustry experience. We combine purchase order funding plus factoring to get companies over the working capital hump. No prepayment Don Rudnik Sterling Commercial Credit 773-771-9251 2 recent loans $25M in accts and $200M in purchase orders weak balance sheet and out of family money. These two companies are doubling their sales and not missing a revenue opportunity
When you say my credit do you mean you personally?
How is business registered? Sole proprietorship, Partner, LLC, Inc.. etc...
It sounds you may need purchase order financing (which provides the funds for production of orders)
Factoring will help you with your cash flow once you ship your products.
A factor will buy your invoices and advance you typically 85% of the invoice and the balance minus their fees once they collect.
We represent (as a commercial collection agency) over 25 factors and purchase order finance companies and are members of the IFA and know most of them.
Hi Di! I have been exploring your business and value proposition. You have a nice company and I hope you'll improve and grow. I am not a finance expert and I concur with the answers provided by other people. Funding sources are there, standard, and no magic solutions available when it comes to financial support / investment.
I have 2 comments: first one, if you get additional investment, you should change the way you are marketing, in order to get better results (extend your season). I recommend you to be very careful, since your additional sales results coming up from "season extension" should be good enough to pay the additional credit you shall receive.
My second comment (wearing my brainstorming hat) is that maybe you could franchise your business. This could be a good way to expand and get additional funds to re invest... or to go for vacation in the low season :)
You can make use of your LC limit. we can help you get LC from top banks. These are LC's at sight. With this LC, you can draw the funds for working capital. Banks will be more than happy to extend funds to you, with a LC, ofcourse, you need to have a non fund based limit.
Your local SBDC (Small Business Development Center) should be able to help you sort through your options. SBDC's are evaluated by their economic impact, so if they can assist you in getting money for your business (from any source), it bodes well for both you and their center. You can find your nearest SBDC at the following link:
BTW, I visited your company's website and it seems that you have a great product. Best of luck!
This is a pretty common problem. Could you let me know know a little bit more about your business - are you selling to other businesses or to consumers? How have you financed the business to this point - does the business have any debt currently?
How much are you willing to spend? There are a number of alternatives:
2 Factor your receivables to get money up front.
3. Crowd funding.
4. It may be too late, but you could have obtained a number of credit cards with high credit limits and take them to the max. It's expensive but an easy way to get quick funds.
5.Try a different bank, maybe a community bank who has more flexible lending authorities.
6. Vendor funding. Instead of paying in 30 days, stretch to 60 or 90 or more.
What NOT to mess with. Payroll withholding or IRS - you are personally liable there.