Working Capital Solutions
Capital needed for day-to-day operations, calculated as current assets minus current liabilities.
Also called operating capital, liquidity, cash flow. Assets such as account receivables (A/R), inventory, equipment can be used as collateral for working capital loans or alternative financing options like factoring, which is an advance on an asset and not technically a loan. A business may have plenty of assets and be profitable but may still not be meeting cash flow needs to operate efficiently or to grow. That is when assets are converted to cash via the options below:
- Account receivables (A/R) aging
- Account payables (A/P) aging
- Equipment list with valuations (if applicable)
- Inventory description and valuation (if applicable)
- List of current lenders/shareholders/note holders (anyone the business owes money to) and the balances owed to each
- Financials (balance sheet and profit & loss statements) for last two years and year-to-date
- Tax returns – two years List of business owners with 25% or more ownership
- Personal financial statement from owners showing personal property, cash, stocks, etc.
Services under Working Capital Solutions
Lines of Credit
This is a catch-all for loans and non-loans where the amount of funds available day-to-day varies based on monies applied to pay down the balance. Works like a credit card. A “borrowing base” is often established as the vehicle by which available funds are determined. The term “line of credit” is most often used with true asset-based loans but factors like to use this term too because “availability” changes day-to-day. Lines of credit are unlike traditional bank term loans or an MCA where a chunk of change is given up front and then payments are made on a daily, weekly or monthly basis.
any loan that is secured by assets of the company such as the receivables, inventory, equipment, real estate, etc. Generally, the owners must personally guarantee the loan so additional qualifiers.
Accounts receivable financing is synonymous. This is not a loan, meaning from an accounting standpoint, it is not considered debt and is not shown on a balance sheet as a liability or debt. It is an advance on an asset or a purchase of an asset (the receivables) at a discount. This is for commercial businesses only, not retail, and the business must invoice their customers and give the customers terms (usually 30 days) in which to pay the invoice. It is transactional, meaning that the factor purchases every invoice submitted by the borrower.
A loan leveraging current equipment as collateral for additional funds. An equipment sale/leaseback is a loan where fully owned equipment is bought by an equipment lender…like a reverse mortgage, the business sells or borrows against the equipment for cash but still keeps possession of their equipment.