Different Types of Working Capital You Must Know About

Your company’s working capital is like the fuel running your growth engine. It keeps your payments to creditors on track, lets you stock up on inventory, even serves as income proof during business loan eligibility checks. Naturally, if you want to meet such responsibilities with ease, you need adequate working capital at all times.

So, how can you ensure you never run low on the funds? Well, you understand the stretch tent hire various types of working capital your business needs. Let’s explore!

  1. Gross working capital

It is the amount of capital you have invested in your company’s current assets, which you can convert into cash within a year. These include cash, account receivables, short-term securities, inventory, and marketable securities.

  1. Net working capital

Net working capital is the difference between your current assets and current liabilities and reflects your company’s ability to meet its short-term financial obligations. Besides, this is the first thing lenders assess when you apply for a business loan.

  1. Temporary working capital

It is the difference between your net working capital and permanent working capital. Also called the variable working capital, it is helpful for meeting immediate business demands. Further, the amount required usually depends on the size of the business and the existing market situations.

You may also consider applying for a loan to meet your temporary capital needs, especially for urgent ones. In such a case, a business loan EMI calculator can help you estimate your payments and decide accordingly.

  1. Permanent working capital

Also called the fixed working capital, it is the minimum amount of capital you need to run the business smoothly, like minimum cash requirements for the daily operation of the business. This amount depends on the size and growth of the business.

  1. Regular working capital

This type of permanent working capital is needed to fund your day-to-day operations, such as paying wages, salaries, bills, raw materials, etc. It simply helps you maintain an appropriate level of funds for smooth operations.

  1. Seasonal working capital

This is the amount of capital required during the peak season of a Financial Year. If your business deals with seasonal goods, you might need this type of capital more often.

For instance, if you manufacture raincoats, you may need seasonal working capital to meet the increased demand during the monsoon. to meet this capital need, you may even have to borrow a loan at an affordable business loan interest rate.

  1. Reserve working capital

As the name suggests, this is the amount of capital kept as a reserve to meet unexpected financial needs. It acts as a safety cushion in case of unforeseen events such as natural disasters, damage to property, strikes, inflation, etc. It is a short-term arrangement to meet with uncertainties.

The bottom line

Now, with the knowledge of the various types of working capitals, you can effectively manage your growing business needs. Besides, several lenders in the market offer affordable loans to help you meet your working capital requirements.

So, if you’re in need of funds, why wait? Check your business loan eligibility and apply with a lender of choice.