The cost of working capital

US Federal Reserve expects interest rate hike above 3.5% and stay at this level throughout 2023 to control inflation. Higher interest rates mean that credit issuers providing loans will be more expensive for the borrower. The cost of working capital is rising, leaving many borrowers with an unpleasant reality. Zaid Rahman, Founder and CEO of Flexbase, says, “The problem is that most people can get working capital. The question is, what is the cost of this working capital? »

About 39% of small business owners find themselves taking out small business loans to offset higher material costs due to inflation. Add rising interest rates to the equation, making it difficult for these companies to repay their loans. Some companies, like flexible base, offer customers interest-free transactions for 60 days. This plan offers a much-appreciated lifeline for construction companies where every little saving makes the difference between staying in business or shutting down. “We get paid directly by merchants, and merchants typically pay interchange fees, or merchant fees if we work with them directly,” Rahman explains. “If you’re a construction company and you swipe your Flexbase card at Home Depot, Home Depot pays us a percentage of that transaction, which is enough to cover our cost of capital.”

And this rise in interest rates couldn’t come at a worse time for construction companies. Home sales are down from a year ago, which is also creating a slowdown in home improvement projects. Small construction projects could see an increase, which means that access to free cash flow is more critical than ever for small and medium-sized businesses. Without such access, many construction companies will not be able to survive.

In addition to access to affordable working capital, businesses need automated expense management to reduce the charging flow time between AR and AP. For an industry where it is estimated only 9% of construction companies getting paid on time since the pandemic hit, the flexibility of payment options with access to built-in expense management is a huge win.

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