Without working capital, businesses have a very difficult time functioning. This article goes over different forms of working capital and methods for obtaining it.
Two Broad Forms
Broadly speaking, working capital comes in two forms. The first is the money businesses have available to pay everyday expenses such as rent, wages, and bills. The other form is the money businesses use for long-term expenses, such as expansion or the purchase of new equipment. Think of the first form as a pool of money that keeps daily operations running smoothly and the second as a pool of money for making future plans come to fruition.
Businesses have many options for improving their flow of working capital. One comes in the form of credit lines, which are available in two setups: business lines of credit and trade credit. A business line of credit is extended by a lender and functions as a revolving pool of money. Trade credit, meanwhile, refers to when the business buys goods but defers payment, as explained on Investopedia.
Another option comes from the Small Business Administration, which backs loans to help small businesses obtain them. Loans are available for varying lengths of time, and you can learn more about them here.
Cash advances are another capital-boosting method. These can come from merchants and customers. In a merchant cash advance, the lender extends funds in exchange for a portion of the business’s future sales. When a customer provides an advance, they pay early for a good or service to be delivered later.
Working capital can also be raised with accounts receivable financing. In this setup, the financing provider buys a company’s outstanding invoices. Two other types of capital-boosting financing are inventory financing and equipment financing. Inventory financing allows access to funds for the purchase of more inventory, while equipment financing allows companies to pay for equipment in installments.
Commercial Capital Funding’s other blog posts cover many additional financing topics, so give them a look if you want to keep learning!