Small Business Working Capital: How It Can Fuel Operations and Growth


Small business working capital nourishes ongoing growth and operations for your company. For small business owners, knowing you’re in the right position to keep your business running smoothly — and turn a profit — is a constant concern. It’s what gets you going first thing in the morning and keeps you working late into the night.

Consider the case of Anne, who owns a small gardening store and landscape shop. With spring and summer on the way, it’s her busiest time of year. Yet it takes money to pay for all the inventory, extra staffing and operating costs required to serve customers and reap those profits. She’s got big plans for growth, and that’s definitely going to require small business operating capital.

Let’s take a deep dive into why working capital is important, how to get working capital for small business operations, and how to make the most of these opportunities.

What Is Working Capital?

Working capital, in the most basic sense, is the capital you have on hand to operate your business. It pays your day-to-day expenses, including overhead costs like payroll and rent. Working capital also provides an edge when you’re ready to invest in growth, from hiring to bringing a new product to market.

In any discussion of business working capital, it’s important to explore why business owners need it in the first place. Running a business can be expensive. Anne, for example, had to think about paying the rent on her space, buying inventory, powering the utilities to keep her plants healthy, and, of course, paying her staff. Depending on your business, the reasons you need working capital can vary, but here are some common expenses:

  • Staff costs, including payroll, benefits and taxes
  • Inventory costs
  • Vendor services
  • Rent or mortgage payments on a physical location
  • Utilities
  • Equipment leasing
  • Business insurance
  • Advisory services, such as legal and accounting help
  • Digital costs, like website upkeep, hosting and others
  • Debt, such as loan payments
  • Local, state and federal tax payments
  • Marketing
  • Miscellaneous overhead and industry-specific expenses

If you can’t cover these costs, it’s difficult to keep the lights on. But having enough working capital on hand helps ensure that your business can operate smoothly and that you can make strategic investments in your business.

For example, Anne wanted to make sure that her landscaping shop could thrive throughout the summer. That meant having enough cash on hand to buy inventory and pay temporary staff to keep things moving. She also had plans for some investments. Launching a marketing campaign could help bring in new customers, and she was eager to invest in some landscaping equipment for homeowners, which would add new revenue streams to her business. At this point, she set out to learn how much working capital she would need and how to get working capital for small business operations and improvements.

Anne the garden store owner interacts with customers at a farmer

Projecting How Much Working Capital You Need

Knowing how much working capital you need can help you establish a plan. For example, do your existing business savings and checking balances cover your needs? How do upcoming contracts and payments fit into the picture? The clearer you can get on these issues, the more accurately you can determine what your needs really are.

There are a couple of ways to understand working capital:

  • Assets Minus Liabilities: Start by assessing what assets your business has, and then subtract the liabilities. For example, if your business has $100,000 in the bank (and let’s assume that’s the only asset your business has) and you owe $50,000 in debt and upcoming payments, then your available working capital is $50,000.
  • Working Capital Ratios: Another way to evaluate your working capital situation is to calculate a ratio. Take the value of your assets and divide it by your liabilities. Typically, organizations want to aim for a working capital ratio of around two. In the example above, a business with $100,000 in assets and $50,000 in liabilities would achieve this ratio. As your ratio drops lower than two, it means that you have less available working capital to operate your business.

Systematically assessing your organization’s financial situation can give you the insights needed to plan ahead. For example, if you have an abundance of working capital, now may be the time to invest in growth. Should you find your working capital levels are below where you want them, it may be time to find out how to get working capital for small business operations and seek additional funding options.

How Much Working Capital Is Enough, and What If You Don’t Have Enough?

Once you’ve assessed the status of your current business situation, it’s important to determine what that information means in the context of your business operations and future goals.

Using the working capital ratio model, if you score around two, that means your working capital is positive and you have money on hand for operations and investments. Scoring below a one means your small business is working capital negative. What should you do if you find this out? First, determine what’s causing the situation. There can be a number of root causes, from poor sales to high expenditures. Put together a plan to spend less, increase sales or get an influx of capital into your business.

Even if you find out that you’ve got working capital on hand, it’s important to ask a few questions to determine if it’s enough:

  • Do you expect any increases in expenses that could drive liabilities up?
  • Are you planning investments or expansions that require capital?
  • Do you have any operational shifts, such as an upcoming inventory purchase, that will tie up a significant amount of capital?

Anne realized that while she had enough capital on hand to meet her basic obligations, an unexpected spike in demand could find her low on cash. In addition, paying for a marketing campaign and investing in new products to expand her business were beyond what her current savings could handle. As she looked into how to get working capital for small business operations, she quickly learned that there are lending options out there. Forbes reported that loan approvals for small business owners have risen in the past year, signaling more opportunities to access working capital loans and other infusions. Smartly borrowing money can give you the resources you need to achieve your goals.

How to Get Working Capital for Small Business Operations

Let’s say that you’ve decided you need access to more working capital. How can you access short-term operating capital? Here are some common small business working capital options that business owners can use to help meet their short-term obligations:

  • Family and Friends: In some cases, small business owners may borrow money from family or friends to help meet short-term expenses. There are many variables at play here, but two things to consider are risk and relationships.
  • Small Business Working Capital Loans: These loans are targeted to help business owners cover short-term needs. Often, they’re available up to limits of $250,000 — though the amounts can range from $5,000 to $500,000 — and are usually repaid over the course of a year. Alternative lenders offer working capital loans that can meet the needs of a variety of growing businesses.
  • SBA Loans: The SBA has a loan program and, in some cases, these loans may be used for small business working capital. However, SBA loans typically go through traditional lenders that may have more stringent requirements.
  • Business Credit Cards: Depending on how much working capital you need, a business credit card may be an option. It’s important to evaluate interest rates with credit cards and how quickly you’ll be able to repay the debt.

Increasingly, small business owners are turning to strategic lending options. Small business working capital can help ensure that you successfully weather storms, are able to meet your short-term obligations, and are ready to take advantage of longer-term investments and opportunities.

How to Apply for a Working Capital Loan

Applying for a working capital loan doesn’t have to be a difficult process. When you work with an alternative lender, for example, they’re likely to use a more flexible approach to determine eligibility. Here’s what you need to apply:

  • Put together your basic information, such as business and personal details.
  • Collect financial documents. Some lenders will only need three months of bank statements, but tax returns and current contracts or purchase orders could also be helpful.
  • Evaluate how much financing you’re planning to apply for and how long you need to pay it back.
  • Be prepared to speak to how you’ll use the money.

The Role of Timing in a Working Capital Loan

Business owners often wonder about the best time to get a working capital loan. There are two ways to think through this. One is to include the possibility as part of your long-term planning. As you evaluate your business finances, upcoming expenses and plans, look at the next three to six months. Do you have the small business working capital on hand to reach your goals? If not, consider applying for a working capital business loan to avoid a cash crisis. Planning ahead can help you keep operating smoothly while your business levels out.

Another time when it may make sense to apply for small business working capital is when you are planning investments or expansions. For example, if you need to hire more staff to meet growing customer support needs during a busy time, a working capital loan may be the right route. When possible, planning ahead eliminates the stress of dealing with cash flow crunches and lets you focus on doing what you do best — running your business and keeping your customers happy.

Making the Most of Your Loan

A small business working capital loan can help you overcome logistical hiccups to keep your business running. Strategically making the most of your loan can put you into a strong financial position. There are a few steps you can take to ensure you’re managing your loan well:

  • Manage Your Business Expenses: Take a hard look at your business expenses. Are there areas where you can cut spending? If so, now may be a great time to reduce spending or find less expensive alternatives to what you’re currently doing. When you cut expenses, your working capital loan goes further and can help sustain your business.
  • Increase Sales and Revenue Collection: It’s also important to get revenue flowing into your small business — to ensure you can pay back your small business working capital loan and to build a cash cushion for the future. What have you done to attract new customers? Can you drive more sales and conversions from your existing customers? What steps can you take to improve incoming revenues, from shortening collection terms to following up on overdue invoices? Increasing revenue and shortening the cycle from purchase to collecting payment can be positive steps to giving you access to the small business working capital you need.
  • Plan Long-Term Financial Management Strategies: What steps can you take to improve your long-term financial management? It varies with every business, but may include putting a plan in place for saving money, revisiting your business model to reduce expenses, or working with an accountant for better financial projections. The more proactively you engage in long-term planning, the more likely you will maintain a healthy ratio of working capital for your future business needs.

Having the working capital on hand that your business needs for smooth operations will always benefit your company. Avoid cash flow crunches, stay current on your liabilities, and invest to grow your assets through strong financial management. If you find your business in need of an influx of cash, short-term loans can help.


Working capital provides you with the flexibility and support to keep your business running. It also helps you to invest in and grow your small business. No matter your vision — whether you want to smooth out operational challenges so you can take your customer focus to the next level or invest in advertising to bring your products to new markets — a working capital loan makes it possible. Take the time to explore what’s needed to make your goals a reality, and then work with a funding partner to pave your business’s path to success.

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