There are a number of ways to raise working capital for your existing business. Bank loans immediately come to mind, as do credit cards for small businesses. Crowd sourcing cannot be ruled out. The bigger question is, what is the reason for needing to raise working capital?

Growth is Best
If there is a reason that can be said to be the “best” for needing additional working capital, it is company growth. There are a number of reasons for this, the most obvious one being that any loans taken out are for the purpose of adding new customers and keeping the existing ones. The expected revenue flow from future sales will easily justify taking out what will likely be short term loans.
Smaller businesses are not likely to find the necessary working capital through using their available cash on their credit cards. Though the idea seems smallish, for many small business owners, it is the easiest and quickest path to getting short-term cash. Without a verifiable history of credit and sales revenue that will make a bank or financial institution stand up and take notice, the process will likely be a long one. When time is not on the side of the business, and it usually is not, the bank loan is often seen to be a last resort.

Seasonal Shortages
Seasonal shortages are a business cycle event for many companies. Consider the pre-holiday times when the demand for stocking up on inventory is high and the demand has yet to catch up with existing inventory. These are times where the need for working capital goes beyond a need to a matter of survival.

People who start businesses in an industry where seasonal shortages are the norm must have a lender in place at the beginning of the business. Owners will have the fight the tendency to use an existing line of credit to gain momentum when they first begin since the seasonal shortage is an imminent train coming down the track. It is perhaps one of the reasons startup retail businesses have such difficulty in showing a profit in the early years.

Time is of the Essence
In both scenarios described, the issue of timing is critical. What the business has to avoid is adding debt without the potential for future sales justifying the borrowing decision. Without additional revenues to justify the loans, the company’s financial position is certain to deteriorate a year later.

A tricky decision to borrowing working capital is hiring a new employee. If the new hire has the potential to increase sales, justifying the hire, then it is a risk that can be managed to a large degree. Should the decision end up being misguided, the company loses not only from a financial perspective, but the judgment of management will be questioned. Furthermore, it is likely the new hire will leave the company, voluntarily or involuntarily, creating a gap in a critical skill set and lowering employee morale.

There are a number of layers to every decision to borrow working capital. That is why the best reason is a growing company. It creates a positive environment for the employees and an optimistic future from the position of management. Even if 100 percent of the anticipated sales do not come to fruition, the rewards far outweigh the risks.