What Is a Working Capital Loan?

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You heard it from your parents when you landed your first job: “Make sure your money is working for you, rather than you just working for your money.” Well, a working capital loan can help you accomplish just that. But first, we answer, what is a working capital loan:

Understanding Your Working Capital

Working capital is essentially the money you have on hand to cover your day-to-day operations. Sounds straightforward, right? In basic terms, it’s the difference between all your current assets (which, by the way, include more than just cash) and your current liabilities (things like accrued expenses, accounts payable, etc.). This ratio helps you keep your eye on the ball to cover any short-term debt. However, in reality, it’s not that simple. And, if you manage inventory or are in an industry that is more volatile, it can be challenging and even tricky to truly measure your business’s working capital.

Two construction workers on a build site discussing a working capital loan

A Working Capital Loan

If you’re wondering how to find working capital, a working capital loan could provide you with the funds to keep your business running smoothly. You can typically use this type of loan to build inventory, consolidate your bill payments, expand your advertising and marketing budget, or even to pay your taxes. For example, if you only have a little cash on hand, your customers owe you money, and certain bills are due immediately, you can use a working capital loan to pay those bills. In this case, the loan will give you some breathing room while you wait for your receivables to roll in.

However you choose to use the money, your capital is helping you run your company and even expand, so it’s working for you rather than the other way around. You did your parents proud.

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