Working capital of any business is the capital used in the operations of that business. The current assets are subtracted from the current liabilities to get the working capital amount.
The working capital of a business tells about the financial strength and its efficiency in the short term.
If a current asset remains below current liabilities, then the company might get into trouble soon and might even end up bankrupt.
The working capital ratio is current assets divided by current liabilities. This ratio tells us whether a business has adequate assets for coverage of the short-term debts.
Working Capital is a vital part of a thriving business. Therefore it is imperative to keep a good source of the working capital.
There are some options available for a business which can be taken advantage of.
Following are some of the options:
Merchant cash advance financing
In this type of working capital financing, capital can be obtained by the collateralization of future credit card sales.
For this line of financing, the company needs to have a good history of business credit.
Credit Cards
One of the commonly used sources of financing in businesses is credit cards. The disadvantage of this credit facility is high percentages of interest particularly if a cash advance is being taken or the payment is being late.
Online business loans
The growth of online business companies providing business loan online particularly to the small companies has been phenomenal over the past few years.
The applications are being approved in quick time and easily. The costs of these small business loans are also not very high. They compete with the traditional loan providers. There are many options available for these business loans.
Invoice Financing
A third party company is involved in this financing. The third party pays the company the amount of the invoice right away, and the company has to pay back over the period of one year. The overseeing of the invoices is done by the company so that the customers of the company do not have an idea that a third party company is being used.
Factoring
For this type of working capital, a factoring company purchases a company’s outstanding credit for a percentage of credits face value. Then the company sends the business the money after subtracting their fee amount. It is an excellent option for getting the capital quickly but has a disadvantage that the business never gets back the entire money that it owed in the invoices because of the fee deducted by the factoring company.
A business can use any of the above options. These benefit different businesses in different ways. Therefore before finalizing an option, the business must thoroughly assess its needs and requirements to ensure that it selects the best option so that it can maximize its benefits.
The available reviews can also be studied to learn from other similar businesses who have used these options for their business and have benefitted from them.
