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Definition of working capital


Working capital is of vital importance to every business owner no matter what kind, or size of the business does he/she run. But the problem is that hardly every third businessperson knows what it is, how to manage it in the right way and where to obtain it if it is needed. This article is to help you and your business grows!

What is working capital?

Working capital is described as a capital required for daily business activity, and it is calculated as the difference between current assets (income, inventory, etc.) and current liabilities (accounts payable, wages or any other debt). Depending on some your debts, you may have positive or negative working capital. If it is negative, you are short of money and you, as an owner, have to go on a treasure hunt for your company to stay up. But you should also be aware of a positive one, as it can mean you do not put enough capital into your own business. To determine if your working capital is high or low, compute your “current ratio.” The current ratio is your current assets divided by your current liabilities. It is used to make sure if the company can pay back its debts. Let’s look

Current Assets:

Cash   -$10 582 000
Short-term investments   -$14 853 000
Inventory   -$1 290 000
Other current assets   -$3,830,000
Total current assets    -$30 555 000

___

Current Liabilities:

Accounts payable   -$3 836 000
Short-term debt   -$2 000 000
Other current liabilities   -$14 745 000
Total current liabilities   -$19 581 000

Current ratio = $30,555,000 / $19,581,000 = 1.56. A ratio from 1.5 to 3 can be counted as healthy and capable of paying off debts.

How to find working capital?

You may never be sure about the time to look for the working capital that is why it is better to have a backup plan that you can use at once and stay with a gain. As previously noted you can sail away to the Treasure Island, take a spade and dig unless you find pieces of jewelry, gold, and gems. But it is not an option as you may meet pirates and never come back home. If to speak about the real settlement of a problem, it would be better to visit a local bank ask them what they can offer you in your situation. Frankly speaking, we would not recommend you exactly to apply at the bank; alternative lender can be a more real solution!

Loans for small businesses

No matter where you decided to look for an additional working capital, you can use:

  • Merchant cash advances
  • SBA loan
  • Invoice factoring
  • Small Business loans
  • Working capital line of credit

There are many options to look for working capital in case you need it for everyday needs, inventory or equipment purchases or you just need to survive unpaid customer invoices. Some financing specialists advice to use Working Capital Loan. It is a loan that suites more small businesses when they are in an urgent situation with available capital for daily needs. The first and the most important perk of this type of loan that it is fast to get and a company can bridge the gap in working capital expenditures. The second good thing about it is that it will be counted as debt and will not require equity transaction – the business owner does not share his partnership with a lender. 800fund.com helps small businesses get the funding they need to grow. Thus do not hesitate and in financial need apply – we will fund you!

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1 Comment comments

Tara Allen

Thanx for adding a caveat to the article,now I’ll know how to calculate my current ratio

Ashley Harris-Ashkat

difficult to be tight money even in business, thus great there are lenders like you!

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