Small business lending

Steps to avoid bad business capital usage

Are you looking for small business lending? It is important that you understand your business finances, as you do not want to use your capital in the wrong ways. You want your business to succeed, and that is why it is so important to educate yourself on potential risk. This will help you make a solid business plan and use capital in the right way. As a result, your business will be a success.

What is Working Capital?

Working capital is the liquid assets that are used to run or grow your business. This may be cash you have or cash you can access for business use. Every business typically has a start-up capital, which will cover business expenses for the first year while it has time to grow and generate income. There will be a number of things your business needs before it can even open its doors. This includes licenses, legal fees, equipment, rental space, advertising, salaries and any other expenses that are needed before your company has time to generate revenue.

Using Working Capital

You must always be aware of how you are using your capital. Avoid using it for matters that are unnecessary. You must always look at ways to cut expenses, so you do not have to use your working capital. If you continue to spend without replenishing or cutting expenses, then your capital will become obsolete. This means you will have to depend on revenue the business is making. In some cases, the business will not generate enough revenue to keep the company afloat. When this occurs, the business will most likely fold.

It is so important that you determine what your working capital should be used for, as it is your business’s lifeline. This capital may be reflected as a positive or negative depending on how much debt the business is carrying. The formula used to calculate available capital is as follows:

Current Assets – Current Liabilities = Working Capital

When you plug in the numbers and come up with a negative amount, then it indicates that you need more working capital. To determine how much capital, you must first start with the negative number (which is what you are already in debt for), multiply it by a negative 1.5. This will take your debt and add 50% more working capital. This will be the minimum amount that you will need to get on track.

Tips for Business Capital Usage

  • Scale Slowly – Make sure you do not go above your means. Keep expenses in check at all times.
  • Budget – Make a budget for all aspects of your business, such as advertising and stock.
  • Offer pre-orders – Great way to fund your business. Means you have sold a product before it hits the floor.
  • Investment – Know and commit to what you can invest. Do not overextend yourself.

Ensure you understand your business’s capital before applying for Small business lending. This will ensure it is used correctly.

Combining a high level of personalized service with a cutting-edge lending platform, Formula Funding delivers an unparalleled banking alternative. We offer a fast and efficient option to get your business the critical funding it needs without the red tape. We work with all credit grades, tax liens, judgments, and charge-offs – something unheard of at a traditional bank. Since 2010 over 15,000 small business owners have used our funding sources to grow and expand.