Understanding Working Capital

One of the first things you are likely to encounter when running a business is the need for working capital loans to smooth out your funding management. Working capital is a term that refers to the cash flow you have at a given time to spend on the day-to-day operations of your company. There are a couple of different types as well as techniques to better manage your working capital including through financing options such as loans or lines of credit.


There are different types of working capital that your company may have and understanding the differences between them can help you better manage those types as well as find ways to leverage them for financing options. Fixed capital is the financing that you always have available to your business such as equipment and property, this is the opposite of temporary or variable which is financing you use during seasonal slumps or natural disasters to stay afloat. Regular working capital is what is needed for daily business operations while reserved is the extra you have after daily expenses which can be saved for big purchases or emergencies. Some of these working capital types can be managed easily with the right line of credit either from a bank or other lender and others will need a bigger influx of funding such as a loan or grant program.


Effectively managing your working capital can give you some benefits such as raising your credit score, increasing profits and saving for emergencies. Improperly managing this capital can lead to the opposite things such as collection actions, lower credit and even bankruptcy. With the right working capital loans, you can effectively consolidate your debts into one payment, usually with a lower interest rate. For example, if you have an equipment loan, a property loan and need financing for growing your inventory, then taking out a new loan to cover all these costs can give you one payment instead of three. You will want to make sure that none of the debts you want to pay off has an early payment penalty higher than you can afford and that the new loan payments fit into your monthly budget.

Managing your working capital is an ongoing process which sometimes requires an influx of funding to ease the strain on your monthly budget. Working capital loans can help with the payment of daily expenses, equipment purchases and growing pains to increase your profits and help save your credit score. These financing options can sometimes help you lower your monthly debt payments or interest rates and can even act as emergency savings in a pinch.