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Why You Should Consider Working Capital to Finance Your Business

Michael Hollis

In the bustle of starting and running their small business, many entrepreneurs make the mistake of not planning ahead. Others are so wrapped up in day-to-day operations that they overlook the importance of cash-flow management. Still others are unsure where to find the working capital they need.

What is Working Capital?

Working capital is the capital a business uses in its day-to-day operations, and is calculated as the business’ current assets minus current liabilities. Its both a measure of the business’ efficiency and its financial health. The state of a business’ working capital determines whether it has enough short-term assets to cover its short-term debt. Current assets include: cash, inventory, notes receivable, accounts receivable, etc. Current liabilities include: short-term loans and accounts payable.

Why is Working Capital Important?

Without sufficient working capital, a business can quickly find itself in a dangerous cash-flow situation. It will be impossible for the business to meet its near-term cash needs. Working capital is typically drained when too much cash is tide up in accounts receivable and debts. If the business cannot quickly convert its assets into cash on hand, the business’ ability to pay bills in a timely manner is threatened.

What are the Advantages of Working Capital?

There are many advantages to securing working capital for your business:

  • Fight Against Bankruptcy – Working capital boosts your business’ cash-flow so it has what it needs to easily cover expenses. Simply, it ensures more cash is coming into your business than is going out.
  • Seize New Opportunities – It’s hard for your business to keep up with the competition when it lacks funds to seize new opportunities. Boosting your working capital positions your business to seize opportunities when they arise. No more missed chances to grow and expand.
  • Availability of Funds – Some merchants and industries are considered “high-risk” in the eyes of traditional lenders. Thus, many banks turn these businesses away. Working with an alternative lender like First American Merchant greatly improves the availability of funds. As a high- risk specialist, FAM has years of experience in working with high risk business types.
  • Speed and Flexibility – Banks involve long wait times for funding, credit checks and extensive documentation. With FAM, businesses can secure the working capital they need quickly – in as little as 24 hours. These business funding options not only provide fast cash, they also offer a flexible solution.

If your business is struggling with cash-flow, consider what securing additional working capital can do for your small business.

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Michael Hollis is a writer for First American Merchant, a business loan provider. You can follow First American Merchant on Twitter @1stamericanfund

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