skip to Main Content

What Is A Working Capital Loan For Your Business?

The working capital is one of the most important things for small businesses. However, it is also a very difficult concept to grasp for business owners. Every business owner understands this term differently. A working capital is the financial amount “by which your current assets exceed current liabilities”. However, determining the perfect capital loan for your business can be difficult, especially if you are no master in economy. So, how can you know what is the working capital for your business?

Think about equity funds

If you own a business that is just at its beginning, and you haven’t made any profit with it, then you should think about equity funds. Equity funds are great for short-term needs. However, you might have to take these funds directly from your personal resources or get help from family or “a third-party investor”.

Think about trade creditors

If you and your trade creditors get along well, then you might want to ask for their help when you need short-term capital for your business. If you have been a correct business owner, a trade owner will definitely be willing to extended the terms and help you get more money or other type of capital.

Think about factoring

Factoring also represents a great resource for small business owners that are looking for short-term financing. Fill an order and a factoring company may buy the account receivable and handle the collection. However, keep in mind that this type of short-term financing is more expensive that regular bank financing. It is a very good idea for new businesses.

Think about a short-term loan

If you need short-term financing fast, a good idea would be to look at short-term loans. These loans are usually given for short periods (less than 12 months) to finance your capital needs temporary. Talk with a banker and get him to grant you a short-term loan for your business.

Think about line of credit

Line of credit is usually more difficult to get by new business, but it does not hurt to try. For example, if your young business has good collateral and you have good capital from equity funds, you may be eligible for a line of credit. This way, you will be able to borrow funds for your needs. These funds will be repaid when you collect the “accounts receivable” that you got from the “short-term sales”. The line of credit usually lasts one year and you need to pay off in 30 or 60 consecutive days during the year to make sure the funds you got are only for short-term needs.

Author:

Finance Expert, Writer, Entrepreneur

Tammy Richards is a passionate finance expert who is also a writer and business owner. With over 10 years of experience as a finance expert, Tammy wants... read more

Like it? Share it!