Money is essential for business operations. A business needs extra funds when starting up or expanding. A working loan is an ideal method to get funds for your business and boost its financial need.

What is Working Capital?

Working capital is an amount of cash borrowed from a financial institution and used by the company for its operations and bill payment. Therefore, a working capital loan refers to a loan that offers working capital.

Working Capital Loans and Traditional Business Loans

A traditional business loan refers to a fixed amount of cash to purchase a specific thing, typically a company asset such as a car, a new property, or a new business. An asset usually secures a business loan. For instance, a business loan to purchase a property uses the property as collateral if the loan is not repaid. Typically, a working capital loan is not secured since it doesn’t require collateral. It is also available when needed.

The Importance of Working Capital

Working capital loans help companies in their daily activities. The loan aims to ensure that businesses continue with their usual operations when a financial crisis occurs. Sufficient working capital may make the difference between the failure and success of a company. During the startup phase, having enough working capital is essential for a business’s daily operations. At some point, you may experience a negative net working capital when business expenses are more than the revenues. Therefore, you may decide to obtain a loan to cater to the expenses as you achieve a positive working capital position.

How Working Capital is Valued for Accounting

All current assets are included in the working capital on a business balance sheet. These current assets include account receivable, cash, inventory, and prepaid insurances. These balance sheet components can be easily converted into cash when there is a necessity to pay the business’s current expenses.

How Working Capital Is Used in a Business

Working capital is a liquidity principle. Although a business may indicate a ‘profit’, the business operations cannot continue if it fails to maintain a positive cash position.

Are you in need of a working capital loan to cater to your business’s needs? Lighthouse Capital offers working capital loans at competitive rates to ensure your business continues to run smoothly.