Common Mistakes Made by Small Businesses in Applying for a Working Capital Loan

Working capital is the difference between your current assets and your current liabilities. In other words, working capital = current assets – current liabilities. Your business’ working capital can be used for all operating expenses, such as employee wages, harnessing supplies and other day-to-day costs. In an ideal business, your working capital would cover all operating costs with enough left over to invest in the growth of your business. Unfortunately, businesses may encounter times where they aren’t making enough to meet daily expenses, let alone invest. This is where working capital financing comes into play. While working capital financing can be very beneficial for your company, there are some mistakes that should be avoided in order to be successful.

3 Common Mistakes Small Businesses Make with a Working Capital Loan

• No Solid Business Plan:
  • This mistake is commonly made by start-up businesses trying to secure financing. Many lenders now require businesses, especially new ones, to have a business plan in place before approving an application. Good business plans include a business overview, target markets, cash flow and projected finances.
  • Other documents often required for a lender include previous tax returns, prior financial statements and legal documentation from your business.
• Not Knowing the Best Funding to Fit your Needs:
  • It is important to know and understand which financing option is best for your business before applying. The most popular types of funding are term loans, invoice factoring and lines of credit. You can often secure a line of credit or invoice factoring quicker than a term loan because the approval process has a faster turnaround time.
  • Invoice factoring is a form of financing that allows your business to get paid immediately on your outstanding invoices and tends to be the best solution for businesses with working capital needs. This process frees up your cash flow to use for day-to-day operating expenses. There are no associated fees and you can choose which invoices to factor and which to keep within your business.
• Out of Date Credit Information:
  • Before applying for any type of funding, it is very important to know your updated credit score and make sure there are no errors on your credit report. Even if you have a low credit score, be transparent with your information when disposing it to potential lenders. Many lenders, including Kover Capital, do not require a high credit score for approval.

Thinking about funding options for your small business can seem stressful, however if you plan ahead, the process can be surprisingly smooth and simple. Kover Capital is here to answer any questions you may have regarding working capital financing. Please contact us at 936-899-5629 or email info@kovarcapital.com.