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Importance of Working Capital in a Business

Importance Of Working Capital In A Business

Every Business needs proper cash flow to run operations. This operational capital is the total summation of the fixed assets and working capital comprising factory and equipment. It is fair to say that every business, large-scale to medium and small-scale, shares a common goal of making good money. But many a times some businesses fail to accomplish that goal due to a lack of strategic working capital management. So, it is extremely crucial to understand the importance of working capital to run a business smoothly.

What is Working Capital?

First things first, working capital is the total amount of capital required in running a business; in other words, the current assets minus current liabilities of a business. The fixed assets procured by a business are used primarily for producing goods and services. These cannot be readily converted into liquid funds. Liquid funds are important to purchase raw materials and essential equipment for the company, pay salaries to employees and run day-to-day business operations without any hassles. Therefore, working capital could be termed as the funds required for such expenses involved in a business journey.

How can a Working Capital or Unsecured Business Loan help your business?

Liquidity issues are the most common threat to any business. For instance, your business has run into a shortage of cash because your payment from the customers is overdue. As a result, you are unable to purchase raw materials from the supplier, since his outstanding payments are also not cleared from your end. In such a scenario, overcoming these short term issues is only possible through an external injection of funds in your business. Working Capital Finance is a solution which takes care of your immediate finance needs, and helps you tackle an unlikely business contingency promptly.

When should you go for a Working Capital Unsecured Business Loan?

A Working capital loan is an Unsecured Business Loan, which helps you mend things when circumstances go out of control. However, a business loan must never be utilized as a substitute for efficient working capital management. Since it is a short term loan, it has a higher rate of interest. So, before opting for an unsecured business loan, you must always evaluate your financial condition.

Factors determining your Working Capital Unsecured Business Loan in Pune

Some basic factors determining your working capital loan requirement are:

  • Nature of your business
  • Season of production
  • Credit Policy
  • Expansion
  • Shortage of Raw Materials
  • Price Levels

Things to keep in mind while taking Working Capital Loan

Some things to keep in mind while taking a Working Capital Loan are:

  • Monitoring your cash flows carefully
  • Managing your inventory properly
  • Obtaining better terms from your suppliers and managing your debtors wisely
  • Applying judicious policies to release revenue generated from sales faster
  • Deploying working capital funds for expenses that are not short term in nature

If your short term expenses are met, paying off the working capital loan the soonest is a wise decision. To evade tedious loan procedures and get attractive schemes on secured and unsecured business loans, feel free to get in touch with TAB Capital. TAB Capital’s Digital Lending Platform is a one-click solution to all your finance related problems, always with you in times of need.

Other products provided by TAB Capital

  1. Unsecured Business Loan in Pune
  2. Machinery Loan
  3. Professional Loan
  4. Two-wheeler Loana

This post first appeared on Business Loan Blog - TAB Capital, please read the originial post: here

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Importance of Working Capital in a Business


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