Working Capital Finance might be the answer to your business cash flow problems

A working capital loan when you need it most can keep you in business. Here’s what you need to know about working capital finance

Working capital finance is a business loan that can help you take care of your day-to-day costs

This type of short-term financing is designed to help you cover immediate operating expenses, even if the business isn’t making enough working capital to cover those expenses. A working capital loan also means you’ll have funds at hand when you need them to finance growth and make the most of any opportunities when they arise.

What exactly is working capital? When should you take out a working capital loan? What are the benefits of a working capital business loan? Let’s take a look.

What is working capital?

When you subtract current liabilities from current assets, the amount left over is your working capital. It’s the money you use to keep your business operating by meeting your short-term expenses, including rent, payroll and inventory.

When should you consider a working capital loan?

Inconsistent cashflow can be the death knell for a business. If your cash flow is suffering, paying bills on time and being able to run your business efficiently becomes an uphill battle. When cash is running low or you’ve already earmarked your liquid assets, a working capital loan could be the answer.

Some of the reasons you might consider a working capital loan for your business include:

To pay employees

Juggling cash flow and meeting your payroll obligations can be tricky. A working capital loan can be used to keep your business on track, and on top of it’s financial obligations.

To make short-term inventory purchases

Using a working capital loan to purchase extra top-up stock or inventory is a great way to ensure you don’t miss out on taking advantage of busy periods.

To cover seasonal fluctuations

Businesses that are at the mercy of seasonal or cyclical sales cycles usually rely on working capital loans to tide them over in periods of reduced income. Seasonal businesses might also use working capital loans to purchase inventory in slower periods to get a head start on preparations for peak sales periods.

Similarly, during busy periods, sales may be soaring but payments received from customers don’t always keep pace. Working capital loans can help cover operational costs until invoices are paid.

Business Growth 

Working capital loans help fledgling businesses cover everyday expenses, pay their employees, hire new employees, and invest in growing and marketing their businesses.

New Business Opportunities

With a working capital loan, you’ll be able to purchase new equipment, invest in training, or ramp up your resources so that you can expand your business and take advantage of opportunities as they arise.

What are the benefits of a working capital loan?

You’ll keep your credit rating intact

A working capital loan when you need it most can keep you in business, without compromising your credit rating. Financial pressure can lead a well-meaning business into the trap of increasing their borrowing and falling behind on payments to creditors – all of which result in a lower credit rating. A lower credit rating means lenders will make you jump through more hoops when it comes to future borrowing and most likely charge a higher interest rate on money borrowed in the future.

Collateral isn’t always required

In general, working capital loans can be either secured and unsecured. Unsecured working capital loans are given only to those small businesses that can demonstrate a squeaky clean credit history and/or have little to no risk of default. If you qualify for an unsecured loan, you won’t need to put up your business, inventory or other assets like property to secure the loan.

Shorter loan terms 

Working capital loans are designed to inject cash into your business to bridge short term cash flow gaps. You can select the loan terms that work best for your business, typically between 1 -18 months.

Freedom over how you use the money

Banks and other lenders have very few restrictions on how you use the money. Working capital loans can be used for many different purposes; the decision is yours based on what works best for your business.

A lifeline when you need it most

Lenders understand that money is needed fast in order to meet immediate business debts. If you have someone who knows what the bank is looking for and can professionally package your application, you could receive the money in as little as one business day, though this varies between lenders.

Flexible repayment terms

Instead of tying up your cash flow for years to come, you can repay a working capital loan over a period of months thanks to flexible repayment terms. Another great feature with this type of finance is that the money is there if and when you need it, and you typically only start making repayments once you’ve drawn down on it.

Need to unlock your working capital to improve cash flow?

Call Andrew on 0410 731 292, or simply email The Loan Tailor at andrew.pantelas@theloantailor.com.au

This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.

Published by

The Loan Tailor

The Loan Tailor is a Sydney based loan brokerage dedicated to understanding your needs and providing simplistic and personalised funding solutions, professionally fitted to you and your business.