Working capital, also known as operating capital, is the cash available for the day-to-day expenses of running a business. It represents a company’s efficiency and short-term financial performance. It’s vital to have cash flow to cover payroll, inventory, marketing campaigns and any other financial expenses that occur within daily operations. Businesses should focus on maintaining enough operating capital to sustain growth.
It can be challenging for small businesses to obtain small business loans for working capital from traditional lenders who typically require extensive collateral or other guarantees that the money will be repaid. In addition, it is becoming more common for traditional lenders to require substantial personal guarantees, such as the business owner’s home or other highly valuable collateral.
A working capital loan allows you to continue your daily operations should you encounter untimely cash flow gaps, seasonal lulls or need to finance new equipment. By utilizing working capital loans, you can invest in your business so that you can ultimately cover your operating expenses.