Understanding the Requisites & Essentials of Bad Credit Business Loans
Credit score or credit history is one of the decisive factors for loan approval. The lender would assess your creditworthiness before giving a yay or
Every business experiences multiple setbacks on its way to success. How one navigates those low points financially determines the pace at which the company grows and flourishes. So, how does one do that? By understanding and strategizing the working capital of the business! For new enterprises that are unsure of how to build the working capital, hopefully, this blog will help you. We will explore the concept of working capital, including working capital loans.
Working capital is the difference between a company’s existing current assets and short-term liabilities. The existing assets are anything that the business owner can liquidate into cash, and the liabilities are the expenses incurred by the company within the same time frame.
Your accounts receivables, prepaid costs, inventory, marketable securities, cash and cash equivalents are the assets. The accounts payable, tax, wages, customer deposits, and interest payments are the liabilities. The working capital determines the overall financial stability of a business. If you have a high net cash flow then you have a significantly high working capital, which means that the finances of your business are in good shape.
Working capital loans, on the other hand, are short term loan options that allow enterprises going through a cash flow deficit to take care of the day-to-day operational expenses like labour costs, marketing and promotional expenses, accounts payable, etc. You cannot use working capital finance for business expansion, investments, or long-term asset buying.
Calculating working capital is as easy as it can get;
Current Assets – Current liabilities = Working Capital of a business.
Here is an example;
Let’s say that your business owns $20,000 in stock and $50,000 in cash. The accounts receivable amount to $30,000. This will make your existing assets to be $100,000. Now, let’s say your taxes, payroll, account payables, etc., amount to $70,000. That leaves you with a surplus amount of $30,000, your working capital.
However, calculating the working capital can be complicated given the circumstances. In that case, you will have to calculate the cash conversion cycle of your company. For that, you need the following numbers;
Now, here is another formula to determine your working capital;
(Inventory days + debtor days) – creditor days = operating cycle/cash conversion cycle.
Here are a few ways to manage your working capital:
All of these tips can help you maintain healthy working capital. If there is a deficit, you can always resort to short term financing, using working capital loans.
Are you seeking working capital loans to fix your cash flow gap for continuity of day-to-day expenses? Reach out to Broc Finance, one of the fastest growing finance brokers in Australia. We can facilitate the best rates and terms for your working capital finance through a credible lender. Visit our solutions page to check out the diverse range of offerings in business financing for SMEs.
Saroj is the Head of Lending at Broc Finance. He comes with 13+ years of experience in small business lending and has a knack of structuring complex deals and get the best outcome for his customers.
Credit score or credit history is one of the decisive factors for loan approval. The lender would assess your creditworthiness before giving a yay or
Business owners know the struggles of cash fluctuations while running their firm. They often experience a gap between the receipt of payments and due date
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