Need Working Capital? Define the Business Need Before You Apply

Does your business need working capital?

Before choosing a financing product, start by defining what the business actually needs the capital to accomplish.

Working capital needs can arise for different reasons, and understanding the underlying requirement can help make the financing conversation more focused.

Start With the Business Need

A business may need additional operating capital because cash is tied up, expenses occur before customer payments arrive, inventory needs to be purchased or the company is preparing for a period of increased activity.

The important question is not simply, “Can I get working capital?”

A better starting point is:

What specific business requirement is creating the need for capital?

Understand the Cash-Flow Timing

A profitable business can still experience periods when cash coming in and cash going out do not occur at the same time.

Understanding that timing can help an owner determine whether the capital need is temporary, recurring or connected to a larger business issue.

Know How Much Capital Is Actually Needed

Estimate the requirement based on the business objective rather than selecting an arbitrary funding amount.

Consider the expected costs, the timing of those costs and how long the additional capital may need to support the business.

Review Existing Obligations

Before adding new financing, understand the company’s current financial commitments.

Existing business credit cards, lines of credit, loans and other obligations can all be relevant when a provider evaluates additional financing.

Be Ready to Explain the Business Profile

Depending on the financing product and provider, areas such as revenue, cash flow, time in business, credit profile and existing debt may be reviewed.

Requirements vary, so a business should avoid assuming that every working-capital product has the same qualification standards.

Working Capital Is a Need — The Financing Product Comes Next

There may be multiple ways to address a working-capital requirement depending on the business profile, amount needed, timing and available financing options.

That is why it can be useful to define the business need first and then evaluate which financing paths may warrant further consideration.

EIN Business Funding provides a starting point for business owners exploring potential funding solutions based on their business needs and circumstances.

Funding availability, eligibility, limits, costs, terms and approval vary by provider and applicant circumstances. Pre-qualification or an initial review does not guarantee financing.

Frequently Asked Questions

What is working capital used for?

Working capital generally supports the ongoing operating needs of a business. The specific use can vary based on the company’s circumstances, timing and business requirements.

How much working capital should a business request?

The amount should be based on the actual business need, expected costs, timing and the company’s ability to support the resulting financial obligation rather than an arbitrary target.

What may financing providers review for working-capital funding?

Depending on the product and provider, factors may include credit profile, time in business, revenue, cash flow, existing debt and supporting business information.