WOJTOWICZ: How to lay your hands on working capital

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Jean Wojtowicz

Q: My business is successful but I am running so close to the bone on expenses that I am running out of cash just to keep the doors open. I’m worried. What’s the best way to locate working capital? I need it fast!

A: You are not alone. I don’t know the nature of your business, but your customers/clients may have decided to reduce their expenses, and that can affect you.

Working capital can be found many places, but each has its pluses and minuses. You can jump onto the Internet and look for options, but you might be more comfortable if you start close to home by asking your banker to help you.

Do your research in advance and you can ask your banker about several approaches, including financing based on your assets.

Mortgage financing might be an option if you own commercial real estate. This is a long process and requires you to pay for an appraisal without any assurance that it will match or exceed the amount you need. It’s a good source if what you owe on the property is less than what you need for working capital.

If you own a lot of equipment (like a restaurant or construction company) you may be able to secure a loan with equipment as collateral.

Commercial lenders have access to many state and local resources that could meet your needs. For example, Lynx Capital Corp. and the Indiana Community Business Credit Corp. can provide working-capital financing. Lynx targets minority-owned firms, but the Credit Corp. is a lender-supported pool of capital that is open to any Indiana company. These are generally considered sources that can supplement what a bank may be able to provide.

Your banker can help you look at programs from the U.S. Small Business Administration. The 7(a) lending program can assist your working-capital needs. The SBA 504 loans cannot fund working capital, but you could shift part of your current budget over to working capital if you obtain 504 financing for something else such as equipment, real estate or a building.

You should move quickly: SBA programs have the bonus of reduced fees due to stimulus programs through the end of the year.

After exploring these options, you may have to be creative. Here are two examples:

If you are a critical supplier to your customers—and they would be hard-pressed to replace you—ask them about getting deposits with each order. This will fund the cost of completing the order for your customer.

Consider extending payments to your suppliers. If you normally pay in 30 days, think about extending to 45 days.

I hope you already have looked long and hard at your own expenses and cut where necessary. And if you are not being diligent about collecting your own receivables, you cannot expect anyone else to lend you money. Collect what is due to you. Often, if receivables are not being paid in a timely fashion, it may be because the customer is unhappy with the product or service you have provided.

And one other thing: Beware of Internet postings that promise 24-hour turnaround on a “merchant cash advance” based upon your expected credit card sales. The interest rates on these loans are often exorbitant (as much as 50 percent) and some require huge upfront fees. While receivables financing is a legitimate form of lending, it’s one you should discuss with your banker.

Talk frankly with your banker about your needs and resources. Do as much homework as possible beforehand and do not hesitate to mention (if the banker doesn’t) alternative programs such as those of the SBA and other sources.•


Wojtowicz is president and founder of Cambridge Capital Management, an Indianapolis manager of business-financing programs. She also chairs the National Association of Development Companies, the trade association for companies certified to make loans from the U.S. Small Business Administration’s 504 program. She can be reached at 843-9704.


  • Bad Advice
    This article contains some bad advice. Lets say that you are a homeowner whose salary has been cut by 20%. Should we take out a second mortgage to maintain a high end life style? No - I'm going to cut expenses within my household - less vacations, eating out, etc. The business owner in question needs to evaluate the business model to make sure its stll viable before getting "working capital" by adding risk to the business. The fact is that the business may no longer work - OR needs to have its cost model adjusted. I realize that my answer is the hard road - but it could save you from bankruptcy.....Realize that the person writing this article is in the loan lending business.......

  • A No! No!
    The article quoted "If you are a critical supplier to your customersâ??and they would be hard-pressed to replace youâ??ask them about getting deposits with each order. This will fund the cost of completing the order for your customer."
    That is the last move you would ever want to make. If you are that critical to your customer's business and you come along and ask them for deposits on an order they are going to start thinking you might not be so reliable and have weak financial strength to stay the course. That customer will immediately start looking for a new source. They can not take the chance you might go out of business. Never show your hand to a critical customer.
  • Working Capital
    I was in the same place as the gentleman who ask the question. I was fortunate enough to have a discussion with Huntington National Bank. We were able to very quickly (within 3 weeks) work out a combination of asset financing and a working line of credit against my receivables. Huntington was very proactive in the process and very agressive, working hard and quickly to earn my business.
  • Advance Funding
    When strapped for cash and therefore faced with closing a business, Advance Funding is a perfectly acceptable means to remaining a viable business. Advance Funding arrangements (with payoff through credit card payments) usually happen because a business owner has been turned down by EVERY other source for money including their own bank. Transalation - very high risk. With high risk should come high reward for the funding company and I think everyone would agree. The right thing is to make sure the business owner is very aware that the funding is very costly. In my experience every business owner has made the decision to remain in business and incur the high fees rather than the alternative - closing their doors.

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