The Working Capital Loan

Posted: 26 Aug 2008 | Categories: Loans

The availability of working capital is essential for any business. Like the blood that flows through the veins of the body, working capital flows through a business, keeping it alive and promoting growth and development.

Working capital is usually expressed as a business’ current assets minus its current liabilities (current assets - current liabilities = current working capital), assets being any item of economic value owned by a business, and liabilities being a business’ debts and/or obligations. The goal is for this to be a positive number, and usually, the higher this number is, the better the financial state of a business. For some businesses, however, this number is either low or negative, basically, meaning the business owes more money than it makes. If this number is negative, a business may be headed for trouble if immediate action isn’t taken, and in a worse case scenario can end up bankrupt.

Working capital is more than just the dollar amount of sales that a business may process each month.

Consider the following example:

Business A processes a significant dollar amount in sales every month, and Business B processes a much smaller amount in monthly sales. But Business A owes money to various institutions and is paying several employees for work that can be done by one or two people, leaving Business A with little leftover money to go back into the business. With little to no debts, and an appropriate amount of employees, Business B has a significant amount of money leftover to go back into the business, for the purchase of equipment, inventory, etc., continuing to increase Business B’s profit.

If you can identify with Business A, your business may be in need of a working capital loan.

A working capital loan is a loan that is used to increase a business’ working capital and can be acquired through a business cash advance. Many business owners use business cash advances to pay for unexpected expenses or to keep a business afloat during a slow or off season. But a business cash advance can also be used as an injection of working capital. It can be used for anything that might help your business to benefit financially, such as increasing advertising, purchasing a company car, opening a business in another location, etc.

There are many selling points of choosing a business cash advance for your working capital needs. One; the speedy process: Business cash advances can usually be approved within 48 hours of application, and funded within seven days of approval. Two; easy repayment: A business cash advance is repaid through your business’ credit card sales. Whenever a customer makes a purchase using a credit card, a small percentage of that sale goes towards repaying the business cash advance. Three; renewals are encouraged: Most business cash advance lenders present borrowers with the option of renewing an account; putting working capital at a business owner’s fingertips should it be needed.

When it comes to measuring your business’ working capital and deciding whether a working capital loan is right for you, it is important to understand that even though working capital is a number that is measured using a mathematical formula, the availability of, or in some cases, lack of working capital can be determined by analyzing a variety of factors in your business.

For this reason, business owners should be aware that when calculating a business’ current working capital, one should not solely consider liquid assets. Assets can include equipment, cars, storage space, etc., that are available for a business’ use, and if they are going unused, they are being wasted, possibly causing the business to forego potential profit.

Evaluate your business’ assets and liabilities. You may discover that using all of your available assets to their greatest potential in addition to receiving a working capital loan through a business cash advance can boost your business dramatically.

Gaston C. writes articles about Working Capital and Business Cash Advances for Merchant Resources International.

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