Understanding Working Capital for Small Businesses
Working Capital is the lifeblood of the small businesses, while they face problems in managing working capital. Here are some key challenges and their solutions to help small businesses.
Working Capital is the lifeblood of any small business, unlike the large corporates, small businesses run on tight cash in hand and whenever they need to cater to a new business or run their business during a lean phase they need the help in the form of working capital loans. While there are a lot of options on paper in the form of traditional lenders who offer the working capital loan for the small businesses, there are some real concerns which keep the small businesses fund-starved.
Firstly, the traditional lenders ask for collaterals in the form of home or office properties which is seldom available with the small businesses as they mostly run their business from rented or leased premises and secondly the traditional lenders take a long time to process the working capital loans and since the working capital loan requirements are mostly urgent the small businesses are unable to utilise the working capital loans offered by the traditional lenders.
Small Businesses have several usages for working capital loans. Here are some top usages and how these small businesses can solve these requirements.
Acquiring a New Client
Small businesses run on a limited cash surplus and acquiring a new client needs a separate inflow of funds before the amount starts flowing in from the new client. While the traditional lenders present several challenges, digital lenders like Indifi offer unsecured working capital loans that can be taken on the basis of the business transactions of the small businesses. For instance, the travel agents run on tight working capital and to acquire a new client they require working capital loan as they need to pay to the airlines and booking aggregators in real time. However, the client takes a few days to make the payment. The lenders like Indifi offer specialised working capital loans that can be taken for a period as short as 7-days to solve such a need.
Inventory addition is another major challenge for small businesses as they need additional funds to buy goods. For instance, a small retail store needs to purchase inventory in advance from the distributors and companies to avail of the latest offers and to earn better margins on the goods. This needs immediate availability of the working capital loans. The digital lenders like Indifi help the retail stores with instant approval on working capital loans based upon their transactions against the card swipe machines and hence, they do not need to provide any collaterals for the same.
Managing a Lean Phase
A lot of small businesses are seasonal in nature and they go through several lean phases wherein they need additional working capital loans to run their business and serve the existing clients. For instance, the small hotels are extremely seasonal in nature, during the lean phase while the revenue is low, they still need to pay for the regular expenses along with the salaries for the staff. Also, they might want to invest a little for the upcoming season, all this requires working capital loans. While the traditional lenders require collaterals, which most hotels are unable to provide being run on a leased or rented premise. This is where the digital lenders like Indifi help the small hotels to overcome their working capital needs, as they help hotels with working capital loans that are based on their business transactions with the travel booking aggregators and can be availed quickly with an easy online loan application.
Running Seasonal Offers
Small business today need to run timely offers, this is especially applicable for the businesses which are consumer-facing as they need working capital loans to create the funds to roll out such offers. While the traditional lenders ask for collaterals and take a long time to process these applications the digital lenders like Indifi help the small businesses with quick and easy working capital loans. Let us consider the case of a small restaurant, it needs to participate in the seasonal promotions done by the food delivery apps to create visibility and get orders during the campaign, they can apply for a working capital loan with Indifi based upon their transactions with the food delivery apps and create an impactful seasonal offer which gives them the additional revenue during the campaign period.