Working Capital

Working capital is the amount of money your small business has on hand after all monthly expenses of been paid. All small businesses require working capital in order to function well, and keeping a cash reserve on hand can be accomplished either by minimizing expenses or by occasionally borrowing to ensure you have cash reserves available.

What Working Capital Is Used For

There are a number of things which require having working capital on hand, and many of these are recurring business requirements. Some of these include paying your rent or other property expenses, normal business expenses, payroll for your employees, upgrading or repairing some of the equipment necessary for your business, and a whole host of unforeseen expenses. It’s also highly advantageous to have working capital on hand in the event that an unanticipated opportunity comes up which you can capitalize on for the benefit of your business. With no working capital available to you, such opportunities would come and go, and would completely pass you by.

Sources of Working Capital

There are a surprising number of sources for working capital which your small business might take advantage of. First of all, you may be able to get approval for a loan from the Small Business Administration, either for a short-term or long-term loan. Then again, you may want to apply for a business line of credit, which works very much like a credit card, in that you can use some portion of it and repay it, thereby restoring your full credit balance. Other ways of acquiring working capital are made available by alternative lenders, using innovative financial products such as merchant cash advances, invoice factoring, or asset-based loans.

Understanding Working Capital Loans

Sometimes a company does not have adequate cash on hand or asset liquidity to cover day-to-day operational expenses and, thus, will secure a loan for this purpose. Companies with high seasonality or cyclical sales may rely on working capital loans to help with periods of reduced business activity.

Obtaining the Working Capital Your Business Needs

Obtaining the working capital that your business needs is not always an easy task, especially if you’ve been applying to banks for loans. If you’re ready to explore some alternative options, we’d like to hear from you. Contact us at Capital Leasing so we can discuss some ways to provide you with the working capital you need for growth, or simply to improve your cash flow.