Businesses often struggle to gather adequate capital to stay afloat and maintain a smooth cash flow. Working capital is a measurement of a firm’s overall efficiency and an indicator of its short-term financial condition. Determining the sources of working capital is, thus, a necessity for every business.
The working capital formula denotes that it is obtained after deducting the current liabilities from the current assets. Maintaining optimal working capital is critical to ensuring the smooth operation of a business, especially for smaller businesses that may face temporary financial challenges.
Importance of working capital in a business’ economic recovery
Several factors can cause a business to close or progress at a snail’s pace. There can also be conditions that can dry up the highly necessary source of working capital. The lower inflow of revenue leads the companies to lose their profits, thereby lowering the working capital required to sail them through daily operations.
During such situations, businesses must find ways to rebuild this depleted capital and maintain positive cash flow. Maintaining a positive working capital flow ensures better economic strength.
A high amount of working capital enables a firm to grow through expansion by recruiting a higher number of human resources, marking their presence in new locations, and several other ways. Injecting working capital into a business also helps to maintain the following aspects of a business’ economy –
- Higher returns on capital.
- Greater profitability.
- Improved solvency and credit profile.
- Uninterrupted production.
- High liquidity and increased value of the business.
- Ability to deal with sudden financial crises.
If you are a struggling business owner wondering how to boost a slow-moving business, below mentioned are some sources of working capital. These would also enhance the overall national economy in addition to supporting your local economy.
Will a business benefit from a working capital loan?
A working capital loan can prove to be a handy option for a struggling business that needs funds for upgrades and to meet other operational costs. A working capital advance is a flexible, short-term business loan that can help a business cover immediate expenses like payroll and rent. Business owners opting for this loan must be responsible for its repayments. This would open doors to several offers from financial institutions apart from enhancing their creditworthiness.
For instance, NBFCs like Bajaj Finserv bring pre-approved offers which help in simplifying and accelerating a lending process. These offers are provided on various financial products like home loans, loans against property, and more. Business owners can check their pre-approved offers by providing a few details such as name and contact number.
In addition to a working capital loan, illustrated below, are some more financial products through which a firm can acquire working capital to meet its short-term and long-term business objectives.
Bridge capital loan
A bridge capital loan is one of the ideal sources of working capital for those requiring a fixed amount of funds for a short period. This would help keep the business afloat while it waits for a guaranteed income.
Business line of credit
A business owner can withdraw funds up to an established limit through a business line of credit whenever necessary. Once the withdrawn amount is paid back, the borrower can again avail of funds as required.
Small business term loan
A small business term loan provides relatively quick financing to the borrower, which must be paid back based on a fixed schedule.
Invoice factoring
Business owners can collect their unpaid invoices from their clients and then sell them to a third party for funds. They would then receive around 70% to 90% of the invoiced amount for immediate usage as an advance. The remaining amount, after deducting the third party’s expenses, would be received as soon as the customer makes the payment.
Now that you know how working capital helps businesses stay agile and bolster economic recovery, you should opt for any of the above sources of working capital from a reputed financial institution.
