Growth is crucial for any business to be successful. That is why it is the prime driving factor for all types of corporations. But every company is not fortunate enough to observe regular sales and revenue throughout the year. This puts a considerable strain on a company’s daily operations, like giving employee payroll or covering account payables. A company’s liquidity can be measured by its working capital, which tells us its capacity to meet short-term cash requirements/obligations. Therefore, to ensure the smooth flow of the day-to-day affairs of a company, businesses apply for working capital loans.
Corporate and business enterprises can calculate the amount of working capital they require by subtracting current liabilities from current assets.
Current Assets — Current Liabilities = Working Capital
Current assets (stock of raw materials, work-in-progress, finished goods, cash/bank balance, accounts receivable, and investments) can be liquidated within 12 months. Current liabilities (accounts payable, outstanding expenses, and taxes) are those liabilities that are due within 12 months.
There are a variety of reasons why businesses may want to take out such loans –
- The company’s CAPEX may have been heavily invested, resulting in a lack of finances for day-to-day operations.
- It has been unable to convert its debts or investments or generate sales as planned.
- Unexpected monetary shortage.
- Lack of cash to start new projects/sales orders or buy raw materials at a lower market price.
Getting a working capital loan from banks or NBFCs has proven to be extremely beneficial for businesses. It enables companies and entrepreneurs to concentrate on capital expenditures, project funding, expansions, new goods, and ideas. A low-interest loan can be effortlessly secured from the financial institution depending on creditworthiness. It also assists companies in settling their creditors and other expenses, which maintains the firm’s goodwill and empowers day-to-day operations to flow efficiently.
ABV Debt facilitates an array of commercial loans like working capital loans without any hassles. The fastest turn-around time and payment flexibilities make it ideal for generating commercial funds.
