Celtic Bank Blog

How You Can Use a Working Capital Loan to Protect or Accelerate Your Business

Need a little extra cash for your business? Lucky for you, there’s a ton of things you can do with a working capital loan. Hire employees, expand inventory, or just make it through rough cash flow slumps with one of the many working capital loan options out there.

There’s so many things you can use a working capital loan for, it’s impossible to cover all of them. But we’ll give you the basics, and help you digest them by breaking them up into three categories: stability, growth, and prevention. And if you’d like to learn more, you can check out our free downloadable ebook, A Smart Business Owner’s Guide to Working Capital Loans, available now!




Some of the most common uses of working capital focus on increasing the stability of your business.

One way working capital loans create stability is by managing your cash flow. By increasing the money available, you’re able to pay your bills on time. This helps struggling businesses keep payroll going smoothly—even when money is tight—and solve other short-term financial problems. The loan is then paid off in small, manageable payments.

Working capital loans also give small business owners an opportunity to increase their liquid capital. Nothing is more frustrating than knowing your hard-earned money isn’t available because customers aren’t paying on time. And while you might wait for those invoices to be paid, your employees won’t. Businesses often turn to working capital loans to stabilize cash flow, allowing them to meet payroll and other obligations while waiting on lagging accounts receivable payments.




Remember when we asked what $89,000 could do for your business? What if you had access to $150,000… or even $350,000? Chances are, you’re already thinking of ways to use cash like that to grow your business. Here are a few examples:

Stock-up for seasonal rushes.

There’s nothing worse than getting an order that you can’t actually fill—it’s like money running out your door! Yet when it comes to seasonal inventory, you don’t always have the money to make sure you’re fully stocked and ready for the rush. Working capital loans give you the money you need upfront to get your business ship-shape before the holiday and seasonal rushes hit. After the season, with holiday profits in hand, you can pay back the money you’ve borrowed and still have profit left over.

Hire key employees.

Sometimes, the best way to improve your business isn’t through a process or a product… it’s a person. Let’s say you want to hire a salesperson to help promote your product. But the right salesperson isn’t going to work for you unless you offer a good base salary, competitive commission, and benefits. Even then, it could take a few months for that salesperson to start making new sales. Is it worth the risk of taking out a loan? Consider this hypothetical scenario:

You decide to hire a new outside sales rep, starting him at a base salary of $51,000 a year. On top of this, you factor in about $11,000 a year in benefits and taxes. Bringing you to a total cost of $62,000 a year, or $5,200 a month.

The first month is mostly spent training on the products and the market, so he doesn’t start trying to sell until month two—during which he doesn’t close any sales. So the entire $10,400 is coming out of your pocket. But by month three, deals are closing and new customers are coming down the pipeline, which generates revenue that can now be used toward that $5,200. By month seven, more than half of his salary is paid by new sales, and at month nine, you’re seeing a profit from his efforts.

In this case, using a working capital loan to hire a new employee was extremely beneficial. It was costly at first, but after time, your salesperson was able to bring in the revenue needed to pay for himself. Not only will his sales continue to grow as he gains more experience, but you’ll also have residual income from the new customers he’s brought in.

Upgrade equipment.

Outdated or old equipment limits production, creates bottlenecks in process, and can cause your business to fall behind your competition. But replacing it can get expensive, and you may not have the cash to do it. Working capital loans of up to $350K can be an option for funding those smaller equipment upgrades. But with how quickly some equipment—especially technology—is advancing, even the newest equipment can soon become outdated. How do you know when it’s worth it to get the loan for upgraded equipment? Let’s look at another hypothetical scenario:

You own a successful downtown restaurant. Recently, you decided to open an offshoot food truck that sells a simplified menu of the most popular restaurant items. Now, in addition to getting normal restaurant traffic, you’re able to service business parks, high schools, community events, and food truck round-ups. But there’s just one problem: the second-hand equipment from your restaurant that’s keeping the food truck running is starting to slow you down. With faster, state-of-the art equipment, you’d be able to cook and serve food more quickly, you’d spend less time tweaking old appliances to meet health code standards, and you’d save space by having more compact appliances—creating a better, more productive cookspace.

This is a great use for a working capital loan. Because the equipment lets you serve more customers and generate more income, you’ll grow your business and be able to pay back the loan. The new equipment may also allow you to expand the menu, so you can reach a wider audience of tastes. And your new appliances aren’t likely to become outdated and obsolete any time soon, so you know you’ll be able to pay them off before you have to upgrade again.

(On that note—using a loan to pay for a technology upgrade can be a good thing, too. You’ll want to consider how long that technology should reasonably last you, and whether it will bring in the revenue to pay for itself before you have to upgrade again).

Launch a marketing campaign.

Many business owners don’t budget enough (or at all) for marketing and advertising. They think that because they have a great product, it will “sell itself.” Nope, you’ve got to sell it. A well-organized marketing campaign can generate an ROI high enough to cover the cost of a loan, and help you reach or build a new customer base that keeps coming back and increases profits.

Take advantage of supplier discounts.

Supplier discounts and bulk pricing can help you cut your costs and enjoy more of the profit you make. But they aren’t always offered at a time that you can afford them. Working capital loans can help with that.

Let’s say the supplier for one of your top-selling cutting boards is running a promotion—one week only—that offers their boards at just-above-cost, saving you 36% per board. You know they’ll sell out if you get them. But you don’t have the money to buy as many boards as you’d like. So you take out a working capital loan to take advantage of the sale. As anticipated, the cutting boards sell out in just a few months. Because your working capital loan payments are manageable, you are able to take advantage of the sale and drive profits.

But maybe you don’t get those kind of promotions from your suppliers. You can still use a working capital loan to help with other supplier discounts. Many businesses will offer a small discount to those who pay invoices early. This is great, because even 2% of a $4,000 order comes out to $80 of savings a month. That adds up over time.

Cover relocation expenses.

Sometimes, to change your circumstances you have to change your location. The city and part of town where you work, the facilities you work in, and where you pull your labor from all impact the overall cost of production. So it’s important to plant your business where you’ll have room to grow. Working capital loans give you the funding you need to take your business where it needs to go… literally. From the moving expenses to the furnishings you’ll need when you get there, funding is available to help you relocate your business.

Renovate or modernize current location.

Other times, the location itself isn’t the problem… just the facilities. Some working capital loans can be used to help with smaller renovating or modernizing projects. However, know that these smaller loans may not be enough to cover an extensive renovation. For larger construction projects, consider looking into larger SBA 7(a) or specialized 504 loans.

Develop new products.

You own a small coffee shop downtown. Business is great, but you realize that you could boost sales if you were able to offer a selection of basic breakfast paninis to the customers who come in daily for their pre-work coffee fix. But adding a new product line like that takes time and resources. A working capital loan can allow you to pay upfront for a new menu, new ingredients, and new equipment.




Working capital loans can also help you prevent financial failure due to no fault of your own, like economic downturns, natural disasters, or other unfavorable and unplanned events.

Build business savings.

Most experts recommend small businesses have between three to six months of liquid savings to stack against economic downturns. Whether it’s just a bad year for you, or a nationwide recession, having money in the bank to guard against such times may not only prevent bankruptcy but give you peace of mind.

Disaster relief.

Fires. Floods. Tornadoes. Natural disasters can crush a small business with unplanned-for expenses. But did you know that the SBA offers special loan rates (under 4%!) for businesses damaged in a disaster? If your business has been affected by a disaster, check with the SBA website’s Current Disaster Declarations to see if your disaster qualifies for a low-interest, long-payment-term loan.

Physical Disaster Loans are available to help with physical damage to property, equipment, inventory, or other fixtures, and can be increased up to 120% of the total loss amount to cover against future disasters.

Economic Injury Disaster Loans of up to $2 million are available to small businesses sustaining large economic injuries to cover expenses the business would have paid if the disaster had not occurred.

Pay your taxes.

Sometimes tax liabilities end up being higher than you anticipated. If you can’t pay the bill, you may be able to negotiate a payment plan with the IRS… but it comes at a cost. Many times, the interest charged on unpaid taxes is higher than what you would pay on a typical bank loan. Depending on the interest rates available, a quick working capital loan can get you what you need to pay those bills on-time—avoiding steep interest and other penalties--and giving you time to pay it back.

Stabilize year-round cash flow.

Many businesses function seasonally. Amusement parks or wedding photographers do especially well during the summer, while outerwear retail businesses tend to thrive in winter. But many businesses still need revenue throughout the year to be successful. Working capital loans can hedge against these slow seasons.

So we really weren’t kidding about working capital loans being able to help you with a ton of different things.

To learn more about working capital loans, the different types available, where to find them, and what you need to do to qualify, download our new, complete guide: A Smart Business Owner’s Guide to Working Capital Loans

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