Working Capital


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Working capital is the money that a company can expand without risk. Current assets less current liabilities is a frequent definition. The net working capital (NWC) of a corporation is a measure of its profitability, operational efficiency, and liquidity.  Working capital loan interest rates vary depending on the lender and the borrower’s company credit histories.

Working capital loans are often for the short or medium-term and are intended to increase liquidity in the business so that it can pursue new prospects. The extent of the working capital loan you can obtain is determined by a variety of factors related to your company’s profile.

Working Capital

Factors Involved in Working Capital Finance

Trade Receivables

Trade Receivables account for a sizable portion of current assets and, as a result, working capital. It also includes the balance owed on bills of exchange receivable.


Inventory management is critical since it is in charge of inventory control from the raw materials to the completed goods stage. Businesses can value inventory in a variety of methods, such as LIFO and FIFO and Weighted Average Method.

Cash Balances

Cash is believed to be the principal component of current assets, and cash includes not only cash, but all accounts that can be easily changed into cash.

Trade Payables

Trade payables account for a large segment of current liabilities. It also covers the amount owed on bills of exchange. This is the amount that the company must pay for credit purchases made by it.

Types of Working Capital Loans

There are different sorts of loans; 5 of the most prevalent types of capital loans are listed below.

1. Bank Overdraft Facility or Credit Line

A strong credit score, interest rate, and maximum line of credit are all determined by the company’s contact with the creditor.  Interest rates are typically set between 1% and 2% above the bank rate.

2. Short-Term Loans

If your company has a solid working connection with the lender and you have an excellent credit history, you might be able to secure a short-term loan even if you don’t have any collateral.

3. Equity Funding via Personal Resources

Personal resources, such as investments from friends or relatives, and home loans, are typically used to get this form of a loan. If your company does not have an excellent credit history, equity loans may be the most convenient loan option.

4. Accounts Receivable Loans

Another option for securing working capital is to request loans based on your firm’s accounts receivable or verified sales invoice value. If your business lacks the finances to complete a business deal or transaction, this sort of debt is suitable.

5. Trade Creditor

A trade creditor working capital loan is a loan granted by a current or prospective supplier. If you place large purchases with a supplier, they often will offer you trade credit. Nonetheless, you may expect the trade debtor to thoroughly analyze your company’s credit history before granting you such a loan.