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More businesses fail because of inadequate cash flow than any other reason, and like children, the age where businesses are most vulnerable to sudden business death syndrome is in their first three years of operation. <br><br> Cash flow is, simply, money coming in versus expenses going out; when the bills and the payments don't line up, many businesses experience a cash flow crunch. Indeed, the primary market for credit in this country is built around working capital advances to businesses, so that they can meet their financial obligations while waiting for payments to clear. Every business above a certain size uses commercial credit for this purpose, and indeed, one of the unspoken threads of what's going on in the world financial markets is that banks are terrified to write short term loans of this nature. (Historically, the price of these loans has been about 4-5%; now they're in the double digit rate on their interest rates.)<br /> <br /> The most common use for a working capital advance is to cover payroll expenses when accounts receivable is still working on getting money in the door. While the current banking situations on this are dire, the procedures haven't changed – you have to provide information on what expenses and income you expect, sales records and how general monthly and quarterly figures; this will determine the size of the loan you get from the bank.<br /> <br /> Working capital advances are similar to foundation loans, the kinds of loans that small businesses use to build their initial cash pool; the aim is to project what your working expenses are going to be for the next three years, and work out a loan to cover that amount; every month, as your business grows, you pay down that loan. The bank earns interest income as you pay off the loan, and you have a cushion to cover you as your business launches.<br /> <br /> The question becomes where to get a working capital advance. Particularly in today's credit climate, this is a more difficult question than it's been in any recent span of time. Unfortunately, the answer is, "It's not going to be easy". There are sites, like the information clearinghouse www.MerchantCashAdvance.com, that can help you assess what kind of working capital advance you're likely to get, and put you in touch with the companies that might provide it. They can interface with lenders, and help you get your papers in order.<br /> <br /> Like any other loan, it's worth your time – and money – to do comparison shopping on a working capital advance. Know what the terms are – including penalties for early payment, interest rates, and the total duration of the loan. Take the time to work out what the total cost of the loan is before you commit; that means taking the loan amount and compounding the interest. There are several web sites out there that can do this for you; most spreadsheet programs also have compound interest formulas.<br /> <br /> When getting a working capital advance, there is always the temptation to "undersell" your need. For most businesses, a working capital advance is an emergency loan; it's covering a vital piece of equipment, or damage to a facility. When you get your estimate for whatever it is you're investing the money in, be sure to both factor in the lost revenue from the time spent on the repairs, and to add a cushion on the loan. For example, if the estimate says it'll take three months to effect repairs, get a loan that will cover you for five just in case there are delays, or unforeseen expenses. It's easier to go through the process once than to keep coming back for a new loan. (Each new loan request will ding your credit rating slightly, so it's best to be sparing with them.)<br /> <br /> Expect, when applying for a working capital advance, that you'll have to provide a plan describing how much funding you need and where the funds will go; the people lending you money are doing so on the premise that you'll pay them back. Showing that your business is functional, and not hemorrhaging money, is a surety that the risk they're taking is minor. (The lower the risk to them, the lower the interest rates they'll charge, and the larger the amount they'll give.)<br /> <br /> When you've got a working capital advance (or the original foundation loan for your business), it's important to be a budget hawk. Always watch the cash flow situation, and always pay the bills on time – that's why you got the loan in the first place. When you're working within the constraints of a loan, look for ways to cut expenses. The goal is to not only pay off the loan, but to ensure that you're building up your own capital reserves at the same time, after covering all expenses and salaries.<br /> <br /> Be wary of places that offer quick turn around loans; these are the business equivalents of "payday loan" operations that skim money from working stiffs. Always ask for the full annual percentage rate of the loan, and always look at the payment terms. There are legitimate 'cash advance' outfits, and in these desperate financial times, there will be a certain amount of temptation – but you absolutely need to make sure that you're paying something that won't put your business deeper in the hole. <br /> <br /> Don't be afraid to sign a collateralized loan in return for a lower interest rate. You're running a business – you have a revenue stream to work from, and getting more business in can offset the monthly payments needed to pay the loan back in short order. When you are paying back the loan, take the time to build budgets for double payments on months where cash flow supports it; a double payment should come after matching the payment you made to the bank with a similar deposit in your company's cash reserve fund. <br /> <br /> Finally, remember the adage about interest: Never pay interest on money that isn't generating revenue for you. This is a fundamental piece of advice for any business owner; that means don't take out loans on things that don't help your business generate revenue. Thus, don't take out a working capital advance for remodeling the employee break room. Do take one out on repairing vital pieces of equipment, or paying for a marketing push on a new product or service launch. <br><br> </td> </tr> <tr> <td class="titleblue" align="left"> </td> </tr> <tr> <td align="left"> <ul> <li style="display: inline;"><strong>Share this story: </strong></li> </ul> <ul> <li style="display: inline;"><a rel="nofollow" target="_blank" href="http://www.blinklist.com/index.php?Action=Blink/addblink.php&Url=http%3A%2F%2Fwww.merchantcashadvance.com%2Farticle%2Findex.php%3Fid%3D1390041&title=Working+Capital+Advances%3A+The+Lifeline+of+Your+Business" title="BlinkList"><img src="http://www.merchantcashadvance.com/images/socialicons/blinklist.png" title="BlinkList" alt="BlinkList" class="sociable-hovers" border="0"></a></li> <li style="display: inline;"><a rel="nofollow" target="_blank" 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