Working Capital

Are you finding yourself rich in long-term assets and poor in operational funds? If so, you may need a boost in the form of working capital financing.  When sales are down, working capital financing can cover the bills, and when sales revive, the debt can be repaid. Working capital financing can also be helpful when you’re ready to launch a new project or make a large investment.

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What is Working Capital financing?

Working capital is a measure of your company’s ability to handle short-term expenses.  Your working capital ratio (represented by dividing your annual assets by your annual liabilities) represents your ability to meet your business’s payment obligations. The ideal ratio depends on your industry, but a ratio between 1.25 and 2.0 is usually considered healthy. A low ratio means you likely have trouble covering daily expenses and payroll. A high ratio may mean that you’re likely not reinvesting enough income into the company.

To calculate the working capital for your business, simply subtract your current liabilities from your current assets. Disregard any assets that are not liquid. The resulting number is how much working capital you have. To get your working capital ratio, divide your annual assets by your annual liabilities.

Lines of Credit
Whether you are taking advantage of vendor trade terms or working with a bank, obtaining a line of credit gives you the flexibility to handle seasonal income fluctuations. Establishing a line of credit allows you to borrow when you need to (within certain limits), and to pay it back when you can.
Factoring
Consider leveraging the value of your accounts receivable to pull in cash for working capital. Factoring lets you sell your pending accounts, contracts, and purchase orders to a trusted third party, eliminating the need to wait for unpaid invoices. If you have such assets, we can help you turn them into working capital.
SBA 7(a)
Small businesses can secure financing through the Small Business Administration to help fund working capital requirements. Talk to us about finding an SBA-certified lender that can quickly get you the funding you need for payroll, utilities, operations, and more.

Advantages of Working Capital financing

  • Quickly secure critical funds.
  • Smooth out seasonal income cycles.
  • Take advantage of options for low credit scores.
  • Avoid long-term obligations

Frequently Asked Questions

01

When is Working Capital financing not a good fit?

Our working capital financing options are usually short-term and are more appropriate for day-to-day operations. If you need to bring in real estate, equipment, or other major assets, a specialized loan may be a better tool. Additionally, if you are able to wait on a longer application process, long-term financing may help you secure lower interest rates.

02

Which assets are used to calculate working capital?

Assets include accounts receivable, cash, and inventory as part of your current assets. If you plan to sell it or use it within the year, it figures into your current asset amount. This even includes prepaid expenses.

03

What counts as liabilities when calculating working capital?

Liabilities are all of your financial obligations that will be due during the year. This includes short-term debt, taxes, accounts payable, and long-term loans maturing in the near future.