The working capital loan is the key to success for any business as it is integrated into its day-to-day activities. Be it the payments you make to suppliers, the salaries you pay to employees, the payments made for overhead expenses, or any other operating asset and liability, all of these fall under the ambit of working capital.
In finance, working capital is defined as the excess of current assets over current liabilities. The purpose of working capital can be as simple as meeting day-to-day operating expenses and as complex as maintaining the liquidity of a company. Hence, working capital serves diverse purposes, and a working capital credit gives you the flexibility to fulfil these purposes even in difficult times.
Table of Contents
WAYS A WORKING CAPITAL LOAN CAN WORK FOR YOUR BUSINESS
Liquidity measures the degree to which the company can meet its short-term obligations with its current assets. In other words, it is the ability to generate cash when and where it is needed. Working capital presents this liquidity and reflects how effectively a company uses assets. Your ongoing operational performance serves as an indication of the financial health of your organization and opens avenues for higher amounts of business loans in the future.
Monitoring Cash Flow
Cash is the blood of any business. With a working capital credit, you can monitor and maintain your cash levels. This cash flow can serve several purposes, ranging from payroll disbursement, paying off creditors, meeting day-to-day expenses, procuring inventory, and paying dividends. Delay in paying any of your liabilities can harm the business operations. E.g., not having cash to refill inventories or buy new products can result in lost sales. With the help of a working capital loan, you can make bulk purchases of inventory and ensure an adequate store of goods. Also, to fulfil payment commitments to your suppliers, you can rely on a working capital finance. It can generally save you from defaulting on your scheduled payments, such as salaries. The non-payment of salaries can lead to qualified and experienced employees leaving the organization. All such critical situations can be averted with a working capital credit.
Preparing for Uncertainties
No matter how future-proof your business planning is, there are always a few external factors that are beyond your control, such as the general economy, unexpected raw material shortages, damage from natural disasters, and changing interest rates. Even internal factors such as equipment breakdown, receipt lags, a cancelled order, or obsolete inventory can bring your business to a halt. A working capital credit provides a cushion against these mishaps and helps you operate smoothly.
Expansion and growth are critical for the survival of any business. Companies with additional working capital can plunge into opportunities as and when they occur and grow their business to its true potential. With a working capital credit, one can consider opening a new store in a different location, upgrading existing equipment, or entering a new service line to gain more customers.
Seizing Seasonal Upswings
During favourable season times, there is an upswing in consumer-spending behaviour, which gives businesses an extraordinary chance to maximize sales. Lots of money can be made during this time if you are well-prepared. But to make the most of this shopping rush, you need additional money to manage your business. Extra inventory, higher advertisement expenditure, employee bonuses, payments to creditors, better customer service, etc. all these require money, and a working capital loan is a viable funding option to cover these expenses.