Every business needs satisfactory working capital which is the difference between current assets and current liabilities, or simply put “liquid funds.” Having adequate working capital is crucial to the financial health of an enterprise. Working capital is used to make routine payments, cover operating costs, and purchase inventories for the production of goods.
Reasons That a Business May Need Additional Working Capital
Companies may need additional working capital when payments from customers are not coming in timely enough to pay employees and suppliers. Times of need may also include gearing up for a busy season, increasing hiring for growth, taking advantage of special purchasing deals, or seizing unexpected opportunities. Efficient working capital management helps companies operate smoothly.
Sources of Finance for Working Capital
Sources of working capital finance include:
Traditional short-term loans from banks or credit unions. Based on a good relationship with a financial institution and good credit, an institution may be willing to provide cash to support short-term needs
Trade credit. In this case, companies buy raw materials, finished inventories, components, or equipment on credit from their suppliers, with payment promised in 30 to 60 days, thus freeing up cash in the interim.
In this case, a company’s receivables are sold to a financial institution and cash is advanced to the company in exchange for a percentage of the receivables offered. The factoring organization is then responsible for collecting the receivables.
Line of credit. A financial institution can provide a line of credit that allows spending for operating needs up to a certain amount. This short-term funding can be used, replenished, and used again during the term of the credit line.
Funds can be injected into a business from personal sources, a friend, family member, or third-party investor.
Seek Expert Funding Assistance
Contact Monument Capital Solutions, based in Odessa, TX for financial assistance and options that will help your business succeed. Our experienced financial professionals can help you secure funding to meet your business’s financial needs.