Working Capital Loan

Simply put, working capital tells a lender how much cash you have to work with. It is calculated by taking your current assets less your current liabilities. This will tell you how much cash you have on hand to meet your businesses expenses. Typically a lender likes to see 3-6 months of working capital reserves on hand at all times. This is not the norm for most business owners, but ideally what lenders desire when looking at commercial loans.

Having working capital reserves tells a lender that the ownership is not drawing all the profits out of the business. It also tells the lender the business can manage unexpected expenses and contingencies in the business as they come up. It is a more conservative approach to business management and demonstrates a healthy cash flowing business.

Getting loans to support working capital are difficult to obtain, but they do get funded. In cases where working capital is funded sufficient collateral must be present. There also must be a need for the working capital. Bankers will not just give you walking around money. Have a budget prepared that you can give your banker with your loan request.

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