We’re already listening to Christmas songs, decorating the tree and buying gifts. The Christmas season is upon us and Australians are expected to spend upwards of $46.7 billion on Christmas this year.
Although many retailers have taken steps to ensure they have enough stock for the Christmas trade, unexpected expenses often crop up at this time of year to wreak havoc on a business’ working capital.
By definition, working capital is the amount by which current assets exceed liabilities – the cash available for the day-to-day expenses of running a business. It is often considered a measure of business efficiency and the short-term financial health of a business.
It’s a delicate juggling act but oftentimes, even good financial management is not enough and businesses need supplementary working capital, particularly at Christmas. So where can they get it? Here are the top five ways to access working capital for your business this holiday season:
5 ways to manage working capital over Christmas
A bank overdraft is a really easy way for a small business to access credit to manage working capital. One of the main benefits of this kind of loan is that you will only pay for the interest applicable to the amount of money overdrawn. The interest rates on a bank overdraft are generally about one to two per cent more than the standard interest rate.
Short term small business loan
A short term small business loan is a good option for businesses that need to manage working capital. These small business loans generally come with a fixed interest rate. Nowadays, alternative lending platforms like Spotcap, offer an unsecured line of credit, which means you no longer need to have property or assets to borrow against.
Spotcap offers small business loans between $10k and $250K which can be repaid over a six or 12 month repayment period. There are no early exit fees which is great for businesses that can easily access finance to prepare for the Christmas trade and pay it back in the New Year.
Equity funding generally means investment from friends or family or even home equity loans. This is a great option for businesses in the early growth stages. The benefit of an equity loan is that the business doesn’t need to have a solid financial history to secure this kind of credit.
Factoring or advances
Factoring is a financial transaction where a company can sell invoices to a third party to meet its immediate working capital needs. The value of a factoring loan is based on future credit card receipts and is therefore only appropriate for businesses which accept credit cards.
Often suppliers will offer a trade credit facility or a loan when you place bulk orders from that company. The supplier will generally conduct an extensive review of your company’s credit history before providing the loan so a good financial history is required.
With so many options available to help small businesses manage working capital, it doesn’t make sense for SMEs to turn to their own personal resources to meet their financial needs anymore. A working capital loan can help you handle any financial concerns that may arise leaving you to continue business as usual throughout the holiday season.
Originally published November 30 2015 , updated April 12 2019