Growing Your Utah Small Business: Discover the Impact of Working Capital Loans
If you’re a small business owner and you’ve ever thought to yourself, “If I only had a lump sum of working capital for my business, life would be a lot easier,” you’re not alone. For many small business owners, $150,000 in additional cash could make the difference between being stuck in a vicious cycle of constant worry about how to cover operating expenses, and having the ready funds to scale the business strategically.
Enter the working capital loan. The Small Business Administration (SBA) works with financial institutions like First Utah Bank to provide business owners with the cash they need to cover daily expenses or take advantage of time-sensitive opportunities. First Utah Bank is a proud member of the SBA Preferred Lender Program (PLP), which means these loans are approved in-house, often in two weeks or less.
The capital can be allocated toward hiring additional employees, upgrading equipment, investing in new software/technology, or purchasing inventory or supplies. Money from working capital loans can also be used to meet short-term operating costs, including payroll, office rent and utilities.
Six more reasons why a working capital loan can be a game-changer for your Utah small business
- Seasonal fluctuations in cash flow are common and you might need extra funds to keep things running smoothly when less money is coming in.
- You may be able to take advantage of deep discounts from suppliers if you buy inventory or supplies in bulk.
- You may be able to take advantage of much lower pricing if you can fully pay for services or products in advance.
- You win a big contract that will help grow your revenue but have substantial upfront costs to fulfill the contract until you get paid.
- You have inconsistent accounts receivable and you want to avoid a cash crunch if a customer is a few days late in paying an invoice.
- The cost of your raw materials suddenly increases and you need the cash to keep operations running smoothly until you can adjust pricing commensurately for your customers
The difference between a working capital loan and a business line of credit
Different types of loans can improve your cash flow, but they’re not all created equal.
A working capital loan is a lump-sum payment that a business can use to cover daily operating expenses. The money sits in the business account until it’s needed and the business owner pays interest on the total amount borrowed. Businesses pay back the capital in monthly installments based on the agreed-upon terms.
Lines of credit are more similar to a traditional credit card than a loan. Instead of getting a lump sum payment, a business line of credit is a revolving line of credit–and your business is preapproved for a specific amount that you can draw on at any time within the term. With a line of credit, you pay interest on the capital you use instead of the total amount.
If you’re a small business owner finding yourself in need of a bit of financial breathing room, an SBA-backed working capital loan may just be the perfect loan for you. Working capital loans are typically easier and faster to obtain than other loan types. They can often be approved in just a few weeks and the requirements are minimal. To qualify, your business should have:
• 500 or fewer employees
• Been in business for at least 2 years (and have two full years of federal tax returns)
• Maintained a daily balance of at least $10,000 in your account for the past 90 days
• A business credit score
According to Justin Delgado, Commercial Lending Manager at First Utah Bank, SBA-backed loans empower lenders with a lot of flexibility in considering the overall creditworthiness of the business. “We consider factors such as whether the loan request will help grow your business, and whether you have a business and personal track record of paying bills on time.”
While many financial institutions often shy away from working capital loans, First Utah Bank has a mandate from its board of directors to help as many Utah small businesses as possible improve their cash flow. It’s part of the First Utah Bank culture. Where other financial institutions may say “no,” First Utah Bank’s mantra is “Let’s see what’s possible.”
Businesses that start with working capital loans are often able to scale and we’re able to help them take their business to the next level when they need larger or more complex loans,” Delgado says. “We love to learn about your long-term plans for your business and how we might be of assistance if you plan to open additional locations, buy commercial property for your business, or even purchase a competitor’s business.”