Working capital is the money and other assets that your company has available to pay bills and short term expenses. So whether you are starting a business or if you need to figure out ways to capture this feature, keep reading this article. We will address 6 ways to get working capital to the company and explain which mode is ideal for your situation.
Before we talk about how to get the working capital for the company, what about understanding a little better what is working capital and what is its importance ?
Working capital: maintaining the health of the company
Working capital is key to the growth and success of virtually every business. Without sufficient working capital, you can not pay your staff, buy raw materials, cover your rent or pay other bills.
According to Lenders, working capital is the difference between the money you have available and the amounts you have to pay .
It is important that you understand that knowing this number will provide information about your company’s short-term liquidity. The greater your working capital, the more financial freedom you will have to grow. On the other hand, if your working capital is too low or negative, you should take steps to stabilize that amount immediately.
There are a few ways how to get working capital to business. Here are some suggestions and tips that may help you at this time.
Get 6 ways to get working capital for your company
1. Contribution of members
If you’re wondering, “How do I get working capital for my company?”, The first suggestion is to sift through savings and seek a financial contribution from the partners.
Who is it for? Companies that are early in their operations, in general, rely on the investment of their own partners, but not only them. If your business needs a quick investment, without too much bureaucracy, the membership contribution is a good option.
Another positive point is that, in these cases, the company will not have to pay interest, at least not in most cases (the partners must agree among themselves how the refund will be).
The negative side is that the company is made to make a profit and in this case is decapitalizing the partners. But with hard work, this will only be a passing phase.
2. Renegotiation of debts and installments
This is not exactly a way to get working capital to business, but it is a way to dilute business costs in the short term.
This strategy can work, because the side of the working capital need equation that addresses costs will have its value diminished. In this way, in some cases, the company will have capital to meet its commitments.
In this model you simply renegotiated the payment deadlines, reducing the value of the installments (even if you increase the number of installments).
Who is it for? If your business does not need much to close the accounts of the month and if you will not have problems by increasing the number of installments of old financing, this may be a good option.
Now if you renegotiate this month and realize that next month you’ll need to renegotiate again, we suggest you look at other options on how to get working capital.
3. Anticipation of receivables
This is one of the best known ways for entrepreneurs to get working capital quickly. As its name suggests, by anticipating the receivables a company is anticipating receiving a customer payment that would only be made in the coming months.
Almost everyone currently offers payment methods to their customers. This is a way to encourage consumption, whether retail or wholesale. If this is your case and you have issued a bill to a customer who has 30 (or 60, 90, 120) days to pay, you can go to a financial institution that anticipates receivables (securitizers and factoring) and receives the value of the ticket at a discount almost immediately.
The interest rate on anticipation is around 3 to 12%
The anticipation can also be realized with payments made through checks and credit cards.
Who is it for? Companies that have a good volume of future receivables and are experiencing a temporary problem can benefit from this modality. It is important, however, that this practice does not become a habit.
Even with lower interest rates, if by anticipating your receivables, in the near future this cash advance is missing from your cashier you are only postponing a problem and not solving it.
Keep track of your cash flow closely and see if the upfront value will now be missing ahead. If you really need this value in the coming months, it might be better to look for another way to get working capital for your company.
4. Sale & Leaseback
Maybe, when you ask, how to get working capital for my company, you’ve never heard of it. It is an agreement between an investor and the company that needs the money for working capital (or other investment).
In this format, the company sells the property to the investor at the same time, in which it rents it in contract with the new owner.
Your company gets a lot of money by paying lower fees (than traditional bank financing). This reduced cost already considers the payment of the rent. When the contract is terminated, the property is returned to the original owner, that is, the company.
Who is it for? Obviously, the model only serves companies that own a property. In addition to this factor, it is necessary to find someone who agrees to be your investor. Having these two points in hand, making a Sale & Leaseback agreement may be a good option, after all, reduced interest rates are always desired.
5. Guaranteed account
You’ve probably overheard a check, so the guaranteed account looks similar to this one, but it has an edge over it: your rates are more attractive .
It is also a revolving credit, but the bank receives a payment guarantee, which can be a mortgage and even checks. They subsidize the release of money.
Who is it for? Almost all companies can have access to this form of working capital, but you have to be careful. Although attractive, the option may have a high incidence of taxes.
6. Bank loans to legal entity
This option is widely used by entrepreneurs from all sectors, with the purpose of obtaining working capital for the company.
It is important that the company make a detailed financial planning, with the real values survey, before applying for the loan. Also plan the ceiling value of the installment so that it will no longer become a problem in the future and how long you intend to repay the loan. Be realistic at this time!
We also suggest that the company conduct a search among the banks it trusts to compare rates, interest, penalties and the total cost of the loan, ensuring that you are making the best deal possible with the lowest rates.
Who is it for? Almost all companies can get a loan at an institution like banks. Your company will go through a credit analysis and if approved will receive the combined money.
It is important, however, to examine whether the options above do not fit the reality of your company, since, in general, they have lower rates than those practiced by the banks.
Credit democratization platform
Technology has brought many benefits to our daily lives, especially to businesses. In the case of those who are wondering “how to get working capital for my company” would be no different.
With the use of technology, it is possible for the entrepreneur to have access to a credit with reduced rates and much faster and easier than in a traditional bank, or even other modalities such as those presented here.