A Smart Business Strategy to Working Capital Is Not Complicated

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Credit cards, credit score and banks

You can repay the loan, or a portion of it, and draw the funds down again at any time as long as the amount does not exceed the limit of the working capital  loan.

Some credit cards companies will provide an interest free period, but you have fewer options at the end of the free interest period.  Your credit score may be lower, below 680 and the banks may no longer have an interest.  Additionally banks do not like to repay third party debt, but they will require that the credit card debt is reduced when they consider a working capital loan.  You cannot have it both ways.

Here is the rub. 

So many accountants advise their clients to avoid  income taxes by increasing shareholder distribution. This may leave the company with little or no residual net income at year end. There are inadequate funds available to service debt . Therefore the bank has no interest in providing funding  for what may be a company ready for growth.

My advice to all entrepreneurs is, if you intend to seek a loan from a bank,  show a profit.  Discuss this with an advisor and your accountant.

Related articles:

  1. 9 Steps to Access Capital for Your Growing Small Business

  2. Four Basic Principles for Raising Capital

  3. Do’s and Don’ts of Credit Best Practices
Marj Weber
Marj Weber
Marjorie Weber has been educating entrepreneurs and guiding them in their search for capital for the past 20 years: combining financial literacy workshops with one-on-one mentoring. Marj is currently President of Primed 2 Grow Inc. a company that provides access to capital for both existing and start up enterprises. She has provided term loans and working capital to hundreds of small business in South Florida. She was Chair of SCORE Miami Dade from 2010 to 2014 and served as a financial advisor for SBDC/FIU from 2014 to 2017. She also served as an advisor to the Goldman Sachs 10,000 Small Business Program and the SBA Emerging Leaders Program and provides training for Veterans seeking an entrepreneurial path upon retirement from the service. She has facilitated workshops under the auspices of Miami Bayside Foundation, Little Haiti Cultural Center and several local banks. She commenced her career as a real estate investment banker in New York.

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