importance of working capital management

What Is a Working Capital Line of Credit?

Business owners encounter their share of challenges on the way to success and profitability. The excitement of the grand opening gives way to the reality of day-to-day operation and the expenditures that accompany it.

You sell your products or perform a service, then wait for payment. Equipment breaks down, or you experience a costly plumbing issue. It takes money you don’t yet have to make repairs. Meanwhile, the monthly bills—rent, utilities, suppliers, creditors—keep coming due whether you are flush with cash or experiencing a slump.

As the owner of a small business or startup, it is important to have access to funding to remain financially viable. This is particularly essential when it comes to meeting short-term expenditures. A working capital line of credit in Marietta issued by a lender like Eagle Business Credit is a financial option available to help you maintain your business footing.

Lines of Credit

There will be times once your business gets started when you will need more cash than what you have on hand. It helps to have a line of credit to turn to for when these situations arise.

Business owners are mostly familiar with lines of credit. They are issued by a financial institution that allows you to borrow money from an ongoing account whenever it is needed, up to a specified limit. The business line of credit comes in handy for short-term needs, such as meeting payroll obligations or to purchase inventory for a seasonal push.

A business line of credit can be secured with collateral such as real estate, or unsecured. If your business is just starting out, you may not have the favorable credit rating or assets to qualify for an unsecured business credit line and its lower rates and higher limits.

Working Your Capital

A working capital line of credit or working capital loan gives small business owners or entrepreneurs a bank loan alternative.

Working capital is what you have when you subtract your company’s current liabilities from the current assets. The positive result is the amount available to borrow.

The benefit of working capital is the ability to maintain cash flow for your company. You have the ability and the flexibility to draw from this financial pool. Because it is money drawn from your business, there is also motivation to pay it back in a timely fashion.

The application process is often simpler and funding usually is available quickly. But there can be drawbacks for the business owner. Many working capital lines of credit are often linked to the owner’s personal line of credit and could be subject to the risk of missed payments or defaults. Working capital loans often require a form of collateral from the business or merchant, and interest rates can be high.

Lenders like Eagle Business Credit can advise you on creating a working capital line of credit for your Marietta business.

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