Different Ways to Get Working Capital for Your Business Growth:

What is Working Capital?

Also known as “Net Working Capital” (NWC), working capital is defined as the capital a business requires to maintain day-to-day operating costs. It is calculated by deducting the company’s current assets from its current liabilities. The working capital of the business is a measure of its cash inflow, cash liquidity, and operational efficiency. It indicates the short-term financial health of the business. If the working capital of the business is low or nil, and the current assets are not more than the current liabilities, the risk of the business defaulting on payments and going out of business is very high. 

Importance of Working Capital for Business Growth:

• It helps measure the short-term financial and operating efficiency of the business.
• It helps maintain a smooth flow of operations and improve the profitability of the business.
• It helps in maintaining the cash flow. 
• Sufficient working capital will increase the value of a business as it is considered as an asset.
• A business maintaining sufficient working capital often gets favourable financing terms when they opt to borrow funds.
• Working capital surplus will keep the business prepared for uncertainties. It will help the business face a crisis or a large increase in orders.

4 Popular Ways to Get Working Capital to Fuel Business Growth:

• Invoice Discounting: Though invoice discounting emerged in the early 90s, it has gained immense popularity in the last few years. In this process, businesses are allowed to trade their unpaid invoices to gain access to the much-required working capital loan. Unlike Invoice Factoring, in invoice discounting, the business retains the right to collect the invoices and are in full control of their sales ledger. This makes bill discounting one of the most viable financing solutions for small businesses across the globe.

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• Peer-to-Peer (P2P) Lending: P2P Lending allows the business to borrow the required funds directly from the investors, eliminating financial institutions as the middleman. Numerous websites facilitate P2P Lending. However, before you opt for this financing mode, you must be aware that each website has its terms and conditions. Only when the business meets the required eligibility parameters, they will be allowed to raise funds. The interest rate may be comparatively higher than alternative financing options. 

• Crowdfunding: This is a method that connects the business owners directly to potential investors. In crowdfunding, small amounts of capital are raised from a large pool of investors who are interested in investing in a business. There are many types of crowdfunding such as equity-based and donation-based funding. The business can choose the type of funding that suits their financial requirements.

• Open Line-of-Credit: An Open Line-of-Credit allows a business to borrow funds as and when they require, upto a maximum limit. Unlike business loans, this financing option does not require approval upon successful registration. Open Line-of-Credit works like a credit card for a business. They can utilise the funds, repay it, and borrow the available balance again.

Making the Right Decision for Your Business:

With numerous financing options available in the market, business owners are spoilt with choices. However, carefully analysing the pros and cons of each financing method will help you choose wisely. If you need collateral-free working capital, have unpaid invoices, and want your balance sheet to remain unaffected, invoice discounting is the way to go. Get in touch with KredX to understand how we can help your business grow.