Friday 7 July 2017

Working Capital Loans for Small Businesses


In terms of accounting, working capital = current assets – current liabilities. Current assets have short term which can quickly converted into cash, mainly accounts inventory and receivable. On the other hand, current liabilities have certain obligations that may due within a year, mainly accounts payable as well as short term debt. In its current assets, working capital can be observed as equity of business. This presumes short term loans are used for short term needs while long term loans are used mainly for fixed assets financing. Often, working capital is incorrectly used in case of business financing needs, particularly for startup business. 


When a business is at its initial stage or an existing business that is increasing its customer base and revenues, the need for true working capital occurs. While starting a business venture, one needs fund for covering inventory as well as accounts receivable balances until they start the receivable collection. The first fund source is accounts payable, which signifies credit terms that have negotiated for purchases with the trade vendors.  Additional funds for covering working capital will come from outer sources. For a new startup business, this might be in startup equity form getting funds from family, friends or other investors. If there are modifications on how quick its inventory as well as accounts receivables turn into cash. For example, inventory and accounts receivables during a slow season turn cash at slower rate than the cash needed for doing payment to vendors.  These are actually the needs of working capital due to timing.



To get the answer of this question, one need to know how funds will flow through their business – or rather one need to know working capital cycle. The flow consists of two processes: how quick cash is used for paying current liabilities and how quick current assets turned into cash. The working capital cycle is termed as turnover rates for inventory, accounts receivables, and accounts payable.


In general, it is quite difficult for startups to get working capital financing from traditional source of banking. Although few small business owners might cover the needed funds from the equity raised by them but others might be lured to turn it through non-bank lending sources such as merchant cash advance, factoring, and online lenders.  These working capital financing sources charge annual percentage rates of 50 percent or more. For small businesses that are in operation and also generating profits, one will definitely reinvest for getting some more profits from the business. Also the business owners start reinvesting profits into inventory, using the profits for carrying out increased levels of receivables as well as using profits for paying trade suppliers.  Moreover, the maintenance of these profits enhances the working capital that might grow continuously.



While starting a small business, one needs working capital financing for investing in inventory and accounts receivable. Using a formula of assumptions, one can get to know how much money is needed for working capital can be estimated on “Turnover Rates” for accounts receivable, inventory, and accounts payable. So, if one is small business owner and is in need of working capital financing, then he must avoid high price related with financing products such as merchant cash advance, factoring and peer-to-peer online lending, and lower cost financing opportunity available through your local Community Development Financial Institution (CDFI).  


ALCOR MNA leverages its relationships with more than 100-major banks and financial institutions to arrange working capital facilities, both fund based as well as non-fund based, for its clients. The facilities are created either through multiple banking routes or the consortium(syndicate) route, depending on the size of the facility. We arrange the same at very competitive rates in the Industry. Select solutions offered by us under Working Capital includes the following:
  • Fund Based: Actual funds are disbursed or made available to the borrowers
    • Cash credit
    • FCNR
    • Overdraft
    • Factoring
    • Export Financing
    • Buyers’ / Suppliers’ Credit
    • Bills Discounting
  • Non-Fund Based: Actual funds are not deployed with borrowers, but these help the obligations to obtain credit facilities from third parties
    • Letters of Credit
    • Guarantees
    • Co-acceptance of Bills/deferred payment guarantees
Are you looking for a Financing Options?

For additional information on how we can help you finance your Company, Complete the Enquiry form. One of our representatives will contact you within one business day.

                                                  http://www.alcormna.com/working-capital

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