Maintaining a healthy working capital is vital to keeping your small business going \u2013 and a key financial indicator to look at if you want to grow it.<\/p>
But how do you do that? And what if you need help? Let\u2019s take a look at loan options that can help your business\u2019s working capital.<\/p>
Your working capital is basically what your business can afford to spend once you\u2019ve paid off all the current expenses. If it\u2019s a positive figure, it means your business has the cash it needs to operate daily \u2013 and if it\u2019s very positive, you may use it to grow the company.<\/p>
The basic formula to calculate your current working capital is: current assets \u2013 current liabilities = current working capital<\/strong>. \u201cCurrent assets\u201d means cash or credit that you can easily turn into cash (for example, invoices your clients will pay within 12 months) and \u201ccurrent liabilities\u201d are all the expenses your business needs to pay (such as rent, wages or debts that you have to settle within 12 months).<\/p> As you may have guessed at this point, the concept of working capital is very similar to cash flow (and operating liquidity).<\/p> The term \u201cworking capital finance\u201d doesn\u2019t refer to a specific type of business loan. It\u2019s about giving your month-to-month working capital a boost \u2013 perhaps during a period when a business is undertaking some special project. There are a series of business finance options you can choose from, and some of them are better than others for working capital fluctuations.<\/p> Business finance options can generally be divided into two main categories:<\/p> Here is a non-exhaustive table of some of the most common types of business finance available.<\/p> If it all looks very complicated, it\u2019s not you, it\u2019s them \u2013 business loans tend to be a bit of a headache. To make the choice easier, you can try thinking about the following:<\/p> Finding a good deal on a business loan can take quite a lot of time, mostly because in most cases providers won\u2019t tell you their interest rates before assessing your circumstances \u2013 so you may have to make a lot of pre-applications to get a full picture of the market.<\/p> A broker, or a matching service, can thus be a good idea \u2013 especially if you don\u2019t have a big finance team and also need advice on the most suitable type of business finance. They\u2019ll look at your business\u2019s finances and needs and present you with a series of options. Many offer the service for free because they make money by charging the providers they host.<\/p> However, for that same reason, you do have to be aware that in most cases, they won\u2019t be able to look at the whole market \u2013 they can only offer you a deal with the providers they have a partnership with.<\/p>What is working capital finance?<\/h3>
What options are available?<\/h3>
<\/th> Type of finance<\/th> Security<\/th> Repayment terms<\/th> Good for<\/th> Bad for<\/th><\/tr><\/thead> Business credit cards<\/a><\/th> Revolving<\/td> Unsecured<\/td> Flexible \u2013 no interest is charged if you pay monthly<\/td> Overdrafts<\/a><\/th> Revolving<\/td> Unsecured<\/td> Flexible \u2013 but the longer you borrow, the more you\u2019ll pay<\/td> Business line of credit<\/a><\/th> Revolving<\/td> Secured or unsecured<\/td> Flexible \u2013 but the longer you borrow, the more you\u2019ll pay<\/td> Invoice financing<\/a><\/th> One-off<\/td> Secured against your invoices<\/td> Short-to-medium terms \u2013 tied to invoice payments<\/td> Merchant cash advances<\/a><\/th> One-off<\/td> Unsecured<\/td> Short-to-medium terms \u2013 tied to credit card takings<\/td> Asset financing<\/a><\/th> One-off<\/td> Secured against business assets<\/td> Medium-to-long terms \u2013 usually repaid in monthly instalments<\/td> Short-term business loans<\/a><\/th> One-off<\/td> Unsecured<\/td> Short terms \u2013 usually repaid in monthly instalments<\/td> Business loans<\/a><\/th> One-off<\/td> Secured or unsecured<\/td> Long terms \u2013 usually repaid in monthly instalments<\/td> How do I choose?<\/h3>
What about a broker?<\/h3>
Compare business loans<\/h4>