If you have a good relationship with your bank then you just might be able to take out a working capital advance, or line of credit to keep your business afloat for a limited period of time as you fix any problems that you might be having which are causing you to lose money. If those problems are clear to you and can be solved then taking out an advance is a good idea. If not, you might want to hold off for a while. 

Throwing money at a problem is not always the best idea there is. When you are in business, particularly in this economy, you need to have a firm grasp of what’s going on with your financials and what your corporate credit looks like. It’s very easy to say that finding some extra working capital funding will get you through that rough patch, but you should never borrow money unless you figure out why you’re losing it in the first place. Sometimes slowing things down and doing an evaluation is a better move. 

Confused? Here’s an example. Let’s say that you have a seasonal business and in the winter your overhead is higher than your income. After a few years you’ll have a good idea of what the number is that you’ll need to get by and you’ll put as much of it away as possible during the production season. Whatever you are short you’ll go to the bank for and borrow. This is known as a working capital advance. 

Now, picture a scenario where you don’t have a good season and you need to approach your lender sooner than you have in the past with a good business credit score. The percentage of off-season working capital you have is much lower so you have to ask for more money. Is it really a good idea to do this or should you maybe be looking at shutting down completely for the off-season. What are the financial consequences of doing that? 

This is just one of many situations where you might want to look at other options besides asking the bank for working capital cash. If you’re trying to keep a few people working through the off-season you should be commended for it, but what good will you be to them if keeping them on those few extra months costs you the entire company? Re-evaluate your situation and you may find that cut-backs and lay-offs are unavoidable. Wait on asking for a loan until you re-open, generating sales, and have established business credit. Then use it to grow your business, not just to keep it open when it’s not making you a profit.<-->

Business Credit, Business Loans, General corporate credit, working capital loans, working capital