Looking for working capital for your business? Here you will find everything you need to know!
August 24, 2022A company's working capital is equal to its long-term financial resources minus its fixed assets. In other words, a business has capital (which may consist of initial investments or long-term loans). This capital allows the company to pay employees' salaries, make payments to suppliers, and cover all the company's operating expenses while it waits for future revenue once customers have paid. Fixed assets, on the other hand, correspond to assets that are invested in the company long term and therefore cannot be easily liquidated. These fixed assets include goodwill, patents, buildings, equipment, shares in other companies or subsidiaries, etc.
Other Popular Blog Posts
How do you calculate working capital?
There are two ways to calculate working capital. The first, which we presented in the introduction, is to subtract fixed assets from permanent capital. The second is to subtract current liabilities from current assets. In both cases, the results read as follows:
If your working capital is greater than zero, the company is doing well. Short-term and long-term expenses are covered. Cash flow is strong and can handle surprises.
If your working capital is zero, your company can finance its long-term investments but is unable to fully cover operating expenses.
If your working capital is less than zero, it means your business is indebted and under capitalized. It cannot finance its own operations and is holding on to short-term debt.
How do you get a working capital loan for your business?
If you are short on cash, you can take out a working capital loan. This is a medium-term loan designed to strengthen the financial structure of your business. You can apply for a loan in two cases. First, for development purposes, when no other short-term solution can be envisaged. Secondly, for a logical restructuring, when the company has run into serious financial difficulties and a reorientation is required.
This type of loan usually has a maximum term of five years, because the companies that take advantage of it are inevitably in difficulty and therefore have a lower prospect of their future in financial terms. Banks are extremely reluctant to grant this type of loan. Although the costs and interest rates vary greatly depending on the offer and the amount, you should expect to pay more for this type of loan. Interest rates range between short and medium term loans.
Recent Blog Posts
The most important thing to remember is that the needs of your business must be anticipated, whether you are self-employed or a small business. Cash flow needs are indeed among the things that need to be taken very seriously, because the fact that you can meet your payments gives your business credibility - or not.
So it's important to aim for achievable goals that take into account the feasibility of projects and your ability to manage them. A financially stable business builds trust and consequently attracts more customers.
Never forget that it's always a good idea to surround yourself with accounting professionals, or at least use accounting software that will help you manage all of these things, but also and especially plan your expenses.
Finally, keep in mind that Ameriquest is a partner you can count on to implement any project you dream of. Our mission is to provide small businesses with a wide range of financing products, offering a more efficient way to obtain funds for the materialization of their projects. We look forward to being part of building a sustainable future for your business.
Contact us at (800) 796-9667