Working Capital Funding
Working capital is generally defined as current assets. Current assets consist of accounts such as cash, marketable securities, accounts receivable, and inventory. Net working capital is defined as total current assets minus total current liabilities, where current liabilities are represented by accounts payable, notes payable and accrued liabilities.
Current liabilities, such as accounts payable and accrual items, may be considered spontaneous in that they generally will increase automatically with increasing sales. For example, as a company increases its sales, purchases and production rise, thus increasing the amount of accounts payable, accrued wages and taxes. In addition, as the company generates additional profits, the retained earnings account increases. If the need for working capital exceeds increases in funds generated, the difference must be financed.
Working capital funding is used to support the operations of the company directly rather than indirectly, as with the purchase of facilities, equipment and other fixed assets. Materials, salaries, utilities and other costs directly related to the primary function of the business are typical expenses that need to be financed with working capital funds due to cash flow timing differences. Arrangements for financing working capital can be obtained through unsecured or secured loans and lines of credit. Unsecured lines of credit for funding working capital needs typically require near-spotless credit histories and a significant number of years in business. This is due to the higher risk assumed by the lending institution when it agrees to fund working capital for an existing business. Because working capital is generally only used for regular company operations, it holds little potential for increased profitability. As a result, it is generally not suitable for venture capital investing or for other lending arrangements that rely on risk versus reward assessments of the funding request.
CNF Exchange provides a number of exclusive services designed to help companies in funding working capital needs. The online interface allows companies to present their case for working capital funding directly to interested lenders at no cost to the prospective borrower. This innovative venue can help businesses find the most advantageous lending arrangements by comparing proposals from a number of lending institutions and investors. CNF Exchange also offers an extensive array of other professional financial services designed to help businesses acquire the lending arrangements necessary for funding working capital expenses and other ongoing operational needs.