Business Loans

Your Guide on Working Capital and Where to Get It

Nov 07, 2022 • 10+ min read
Business owner looking into working capital
Table of Contents

      Your business needs positive cash flow to survive. But making more than you spend every month doesn’t give you the full picture of your business health. A business may be cash flow positive but declining overall.

      This scenario is where working capital comes into play. If cash flow is a picture of how your business is performing in the short term, then working capital is a snapshot of its long-term health. Increasing your working capital improves your ability to impact the ongoing growth of your business.

      Businesses with negative working capital slowly fade away while businesses with positive working capital have the assets they need to grow into a stable business.

      So what exactly is working capital?

      Primer On Working Capital

      Simply put, working capital is the difference between the liquid assets and liabilities of your company. These assets are required to be liquid enough to sell within a year.

      The type of assets that typically constitute working capital include:

      • Property
      • Inventory
      • Cash
      • Marketable securities
      • Notes receivable

      Liabilities factored into working capital include:

      • Wages
      • Rent
      • Utilities
      • Taxes
      • Accounts payable

      You can find your business’s working capital by taking the sum of your current assets and subtracting your current liabilities. A more telling number is your business’s working capital ratio. This ratio is the sum of your current assets divided by your current liabilities. A number below 1 means you have negative working capital, whereas a number above 1 means you have positive working capital.

      When factored together, your working capital sum will either show a surplus or a deficit. A surplus of working capital means that your business processes can flow uninterrupted. If your inventory is liquid—meaning you’re able to sell your stock quickly—you’ll see an increase in working capital.

      Working capital represents assets that are working for your business. When your working capital is positive, your assets outpace your liabilities, generating positive growth in the long-term.

      When working capital is at a deficit, the progress of your business is outpaced by growing debts and liabilities. Working capital inefficiencies often happen when demand is unpredictable. Here’s how:

      Working Capital Inefficiencies

      Say you’re selling an expensive mattress that most consumers can’t afford to purchase with a lump sum. You’d likely offer a payment plan where consumers pay a portion of the mattress’s price every month.

      What happens if the demand for your mattresses skyrockets unexpectedly, but you don’t have enough liquid capital lying around to purchase excess inventory to fulfill the demand for orders because so many customers are paying over time? This financial stalemate represents a working capital inefficiency in your business—one that severely impairs your sales growth.

      These kinds of working capital inefficiencies can cripple your business in the long term and cause you to lose much-needed revenue.

      But don’t worry—for the duration of this guide, we’ll outline places to go and products to use when you want to increase your working capital. By the time we’re done here, you’ll understand how to invest in the long-term growth of your business in a way that mitigates and eliminates working capital inefficiencies.

      Let’s get started.

      Traditional Lenders

      If you’ve ever tried to get a loan from a bank, you know 2 things:

      1. The process from application to completion takes forever
      2. Traditional lenders aren’t too keen on small business

      Why does the application take forever? It’s because most lenders require you to fill out most of the following paperwork:

      • Amount of money requested
      • Intended purpose of the loan
      • Your personal credit score
      • Your business credit score
      • Time in business
      • Business plan
      • Industry
      • Entity type
      • Business licenses and permits
      • Employer identification number
      • Proof of collateral
      • Annual business revenue and profit
      • Bank statements
      • Balance sheet
      • Personal and business tax returns
      • Copy of your commercial lease
      • How much debt you already owe
      • Accounts receivable and payable reports
      • Ownership and affiliations
      • Legal contracts and agreements

      Traditional loan applications have an 80% denial rate because the regulated structure of the modern banking system values large, stable investments over smaller, riskier investments like most small business proposals.

      Ever since the 2008 recession, traditional lenders have had to consistently cut back on small business loans fulfilled every year due to heavy restrictions imposed on their lending practices. The majority of small businesses that make the cut are seasoned companies with a proven track record and impeccable credit.

      These conditions leave out many startups, entrepreneurs whose enterprises have encountered serious roadblocks, and a whole slew of people who, for one reason or another, don’t have perfect credit.

      Because of this, it’s hard to recommend loans from traditional lenders as a way to boost working capital.

      However, if you’re OK with handling a 29-hour mountain of paperwork and waiting a few months or so to get the loan approved and the money deposited, a bank loan is a valid source of working capital.

      The extra money can be invested in more business assets or held onto as protection against unexpected expenditures. The problem with using a bank loan for reserve working capital is that you’ll pay interest on the loan whether it’s working to make you money or sitting dormant.

      There’s a better way. In fact, we’re about to talk about it.

      Marketplace Lenders

      If you’ve ever applied for financing at a marketplace lender like Lendio, you know 3 things:

      • The application process is faster than a speeding bullet
      • The loans are designed around the needs of small businesses
      • The number of options available to your business is staggering

      Rather than forcing you to spend hours of your day filling out mindless paperwork, lending marketplaces offer a fast application process that uses a single online application to match your business with financing options from a variety of lenders.

      At Lendio, for example, our application takes only 15 minutes to complete. That’s about the time it takes to make a supercharged kale-avocado smoothie, and it’s just as good for your business as the smoothie is for your body.

      Most lending marketplaces boast between a 60–70% approval rate for applicants. That application process is 116 times shorter for a 70% chance of getting approved. It’s really a no-brainer.

      Also, it’s common to start receiving approvals for loans within the first 24 hours of applying, getting you the cash you need when you’re in a bind.

      Almost 80% of small business owners who secured funding through online lending reported satisfaction with both the simpler application process and the shorter wait for a credit decision. Compare that to just half of traditional bank borrowers who report satisfaction.

      In addition to providing an all-around more pleasant experience, marketplace lenders usually offer a plethora of loan types, each tailor-fitted to satisfy specific business needs.

      These options give you the freedom to decide what your business needs to best improve its working capital.


      The final source of working capital we’ll look at is crowdfunding. Crowdfunding is growing at an exponential rate. Total crowdfunding raised in the US in 2016 was $738.9 million, and the projected total crowdfunding raised worldwide by 2025 is $300 billion.

      So where does crowdfunding fit into the working capital discussion? Well, the fundamental problem with crowdfunding done through Kickstarter—the most common platform—is that only a very specific type of business works well.

      A restaurant, for example, would find it nearly impossible to fund a new location using Kickstarter because the platform follows a reward-based crowdfunding model. What this means is that customers invest in the end product and expect a copy of said product in return.

      Thus, crowdfunding works best for businesses looking to fund product development and dispersal. So if your business is product-based, Kickstarter may be a viable way to grow your working capital and finance your inventory. But that’s about it.

      Backers don’t like the idea of their money being used for anything outside product development. While there’s no oversight as to how the funds are used when you get them, the success of your current and future campaigns rides entirely on your ability to deliver a high-quality finished product.

      If you have money left over after you’ve delivered your product, its use is up to your discretion. Remember, however, that Kickstarter takes 5% of the total funding amount, so be sure to factor that into your calculations when putting a campaign together.Other forms of crowdfunding are donation-based—where people don’t expect anything in return—but it’s difficult to generate business capital using these platforms. Platforms like GoFundMe are best utilized by nonprofit organizations looking to expand their services. If that’s not you, donation-based crowdfunding probably isn’t a viable option.

      Are You Ready for Working Capital?

      The real key with working capital is flexible funds that you can use to improve your business, stabilize your operations, and capitalize on unexpected opportunities. That’s why our team at Lendio has made it a goal to offer loan products that meet the working capital needs of any business.

      While there are plenty of other financing routes to take, few offer the flexibility of a business credit card or line of credit. Almost none offer the speed and urgency of a merchant cash advance. Best of all, you can access these financial products by spending only 15-minutes filling out an application.

      An application that we send to our proprietary network of over 75 lenders who compete for your business. So if you’re ready for the offers to start pouring in, get started on the application today.

      Quickly Compare Loan Offers from Multiple Lenders

      Applying is free and won’t impact your credit

      Talk to a rep at (855) 853-6346
      Mon-Fri 7:30am-5pm MST

      The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. Any content provided by our bloggers or authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything. The information provided in this post is not intended to constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.
      About the author
      Andrew Mosteller

      Andrew Mosteller is a freelance writer and regular contributor to Lendio News. His upbringing in an entrepreneurial family nurtured a passion for small business at a young age. Andrew's father, an equity fund manager, taught him the ins and outs of investment financing. Now, Andrew spends his time writing copy for business owners, helping them expand and advertise their unique brands. He's also studying Strategic Communications at the University of Utah. When Andrew's fingers aren't glued to the keyboard, he spends his time reading, podcasting, composing music, and bombing down the ski slopes.

      Share Article:

      Business insights right to your inbox

      Subscribe to our weekly newsletter for industry news and business strategies and tips

      Subscribe to the newsletter

      Subscribe to our weekly newsletter for industry news and business strategies and tips.