Finding the right balance between assets and liabilities can be challenging for any business, but it becomes even more difficult for small and medium enterprises that lack experience in this area. However, when this balance isn’t maintained, any company can end up with a working capital deficit and have difficulties covering their daily expenses. To support your business operations, it’s recommended to choose a lending option that suits the needs of your company the most. With that in mind, here are some efficient ways you could generate working capital for your SME:
1. Business Loans
Possibly the most common and efficient way to generate working capital for SMEs is by acquiring traditional business loans from banks and other financial institutions. As with any other loan, business loans also work by providing you with a certain amount of money and asking you to repay it with added interest by following a predetermined schedule. However, business loans are recommended over personal loans for companies, as they’re specifically designed to fulfill the needs of your business. Newer solutions can provide you with higher flexibility and the chance to make different choices of tenure as well. Just keep in mind that you may need a very good credit rating and secured collateral to acquire the right business loan.
2. Business Credit Cards
Another way to manage your business finances more efficiently is to take out a business credit card. These types of cards are specifically designed for companies, not individuals, to meet the usual financial needs of the business. Corporate credit cards will give you the opportunity to access short-term working capital and can be used for a number of different purchases, bookings, and payments that may be required for facilitating business operations. In case the needed working capital isn’t substantial, business credit cards allow you to fill any existing financial gaps without needing to wait for approvals. They can also help companies to build credit and increase loan approval chances over time, especially for small enterprises.
3. Trade Finance
If you deal in importing and exporting, efficient trade finance solutions could be the right choice for your company. By enabling you to set your own trading terms and allowing you to pay both local and international suppliers without any issues, this financing solution will increase your purchasing power, give you the opportunity to choose only the best partners for your business, and empower you to go global. Trade finance options also give you access to a convenient, revolving line of credit which can allow you to close your working capital gap. This is a great way to generate working capital for SMEs working in the trade industry.
4. Fintech Companies
Fintech companies represent special financial institutions that use new technologies such as computers and cell phones to deliver necessary financial services. Their platforms, programs, and unique expertise are specifically designed to inject cash into the ecosystem of supply chain finance, thus empowering SMEs to raise their working capital. Fintech companies tend to be more technologically efficient compared to conventional financial services, and they could provide a more personalized solution to each business as well. The process of applying for loans with fintech partners is also digital in many cases, encouraging you to post an application through their website and expect a swift response.
5. Angel Investors
As higher net worth individuals, angel investors aim to offer financial assistance to startups, small businesses, and other new ventures. This type of financial help is often provided in exchange for a percentage of ownership in the company, usually as equity. Depending on the person, as well as the type of participation and investment they are seeking, angel investors could either offer a one-time financial investment or continue to support the company through its development. Although certain angel investors willing to support medium enterprises can be found, these individuals tend to go for newer and more innovative businesses, usually looking to participate in the development process and other ventures as well.
While this alternative solution is most commonly used for starting and building a business, crowdfunding could also be utilized for generating working capital for SMEs. Startups could possibly benefit from crowdfunding the most, due to their lack of a financial record they could rely on. Simply by posting an interesting story about your company on a crowdfunding website and asking for contributions, you may be able to gather smaller amounts of working capital for your business from a large number of private investors. However, you might also need to provide a certain “reward” in return, such as a free service or product from your company.
No matter what you require working capital for, there is clearly an option for any SME. Consider your current financial situation, the needs of your business, and your overall timeline before making the final choice.