What is a working capital loan and how can it help your business? This is a common question among business owners, especially those who own small businesses or startups. After all, working capital is a big concern for businesses with limited financial reach (either due to their size or their business model).

So let’s take a closer look at working capital loans and how they work.

How a Working Capital Loan Works

Let’s start with a quick definition. Working capital refers to the money needed to operate a business from day to day. You can reverse the wording and see how it makes sense — it is the capital needed to keep your business working, day after day.

So by extension, a working capital loan is any loan designed to provide a business with the capital needed to keep things moving. Regardless of where the loan comes from (a bank, a financing company, etc.), the result of the loan is the same. The business owner now has additional working capital with which to operate his business.

Types of Working Capital Loans

It’s hard to generalize loans in general, and that applies to the working capital variety as well. These types of loans come with a wide variety of terms and requirements. So for now, let’s just simplify the world of working capital loans into two main categories — (1) traditional style loans and (2) accounts receivable financing.

• Traditional style loans – Many banks offer loans designed with small businesses in mind. These loans can provide quick capital for businesses in need, thus they are a form of working capital loan (also referred to as small business loans). These types of loans are made based on the past history of the company and can make sense when your business is not growing. However, they may limit your ability to access additional capital in a growth mode.
• Accounts receivable financing — This type of financing is often provided by factoring companies like Far West Capital. Here, the business owner transfers invoices / accounts receivable to a factoring company who will then advance the business owner a percentage of the invoice amount. This type of financing goes by many names — invoice factoring, working capital financing, accounts receivable factoring etc. This type of business financing is meant for companies that are growing and have a need for capital above and beyond what a traditional working capital loan can provide.

Despite the source of the loan or the terms that come with it, the end-goal of all working capital loans is the same: to provide the business owner with additional cash flow to keep his or her business running.

If you are seeking the latter form of financing mentioned above, be sure to contact us about our working capital financing services.

You’ve probably noticed the phrase working capital financing all over our website. It is, after all, a core part of our service. But what is working capital, and what does it have to do with running a small business? Here’s a basic definition:

Working Capital Defined

Working capital refers to liquid assets a company has with which to operate. Mathematically, it is your current assets minus your current liabilities. But it’s easier to understand (and explain) as the cash you currently have on hand to cover expenses.

Inventories and invoices are a type of asset, but they differ from working capital in that they are not readily liquid / spendable.

Our services are built around working capital. Through various means, we provide companies with the cash flow they need to operate their businesses, so our primary service is referred to as working capital financing. We do this through a variety of accounts receivable and inventory financing services.

Questions About Working Capital Finance?

If you have questions about any of the financing services we offer, or about working capital in general, please contact a Far West representative.

Continuing our lesson on working capital financing terminology, this blog post will explain the term “accounts receivable factoring” as well as the concepts behind it.

Accounts receivable factoring takes place when a factoring company purchases a company’s invoices and in turn provides the company with working capital. Here’s an example using a fictitious company that we will call ABC Staffing Company.

Let’s say that ABC Staffing sends temporary employees (temps) to various companies in their operating area, and that they operate on a basic 30-day invoicing program. If ABC needs additional capital / cash flow to cover certain operating expenses (like paying the temps), they can assign their invoices to an accounts receivable factoring company in exchange for cash flow. This will help them cover their day-to-day operational costs, like paying those temps.

The company’s who owe ABC Staffing would then send their payments to the accounts receivable factoring company (instead of sending them directly to ABC Staffing).

Note: If you learn better with the help of visual aids, diagrams and the like, be sure to check out the accounts receivable diagram on our Services page. We have a diagram that shows the process of accounts receivable financing in illustrated fashion.

What is working capital finance? How do factoring services work, and how can they help you grow your business?

These are some of the questions we will answer with the Working Capital Blog. So let’s start with one of the most common questions people have about this subject. Let’s start with a basic definition of financial services that use factoring.

Factoring Defined
Factoring involves the purchase of accounts receivable, such as invoices, from a business. Basically, the factoring company purchases a company’s invoices and provides the company with working capital. This way, the company can liquidate their invoices in a timely fashion to obtain much-needed working capital (money needed to operate their business).

Factoring Financial Services
Now that we know the basic definition of factoring, we can more easily understand the concept and practice of factoring financial services. These companies, such as Far West Capital, provide financial services to business that involve — among other things — factoring of accounts receivable. In this way, factoring financial services can inject additional cash flow / capital into the business who needs it.

If you have questions about factoring financial services in general, or about our factoring services in particular, please contact a representative.