Working Capital Funding is crucial to businesses staying afloat during economic hardship and here’s why: It can be used to fund company investments under the umbrella of short-term financing. One may ask why is this so important? And what exactly is working capital? Let alone working Capital funding.
What Is Working Capital Funding
The answer is that many businesses lack enough cash flow to fund day-to-day operations while financing the operating cycle which is where working capital funding comes into play. 82% of businesses that fail do so because of poor cash flow management, putting WCF at the top of the list of importance.
Working capital is the money leftover after paying current liabilities. The financial metric is measured by dividing current assets by current liabilities, measuring a business’ liquidity, in other words ability to meet payment obligations in a timely manner.
Positive working capital shows that your business has enough funds to pay bills and debt, while negative working capital is the opposite, indicating that your company could be in trouble.
Used when current liabilities outweigh current assets, receiving this funding can make a business, while not receiving could break one.
Not having access to cash flow can result in a major dilemma: expansion without being able to take advantage of the opportunities. One of the worst possible situations to find your business in is having the opportunities but not being able to take advantage of them.
Applying For Funding
These loans can curb that by covering day-to-day expenses such as rent, payroll and utilities. And even better- most of these loans are unsecured, meaning that the funding isn’t tied to collateral.
Whether a company has cash flow gaps, seasonal lows or other bumps in the road, it can help get the business out of and stay out of financial trouble.
With flexible repayment options, each plan is tailored to the specific company. Because the purpose of these loans are different from others, the application process is usually different as well. While no two businesses are the same, there are many different variations available.
When choosing a plan it is critical to look at size, sector and long-term strategy when figuring out capital needs.
This may seem intimidating, but there are many Capital Funding companies that can guide you through the process, helping to figure out the perfect plan for your business.
Some even use revenue based models instead of credit, meaning that regardless of credit score, you can still get the money needed to run a successful business.
While the cash on hand should always be able to cover current needs as well as possible unanticipated financial emergencies, it is important to be aware of creating insufficient spending habits.
Working Capital Funding is a strategic process viable to maximizing return on long-term assets, putting it at a very high level of importance is growing your business, often making it vital for success.
Whether you are looking to keep the lights on in your business, or planning for sustainable long-term growth, working capital funding is a great way to ensure that your business is and stays healthy.