Most businesses need short-term working capital at some point in their operations. It is because of some working capital block in inventory or account receivable.
Some small businesses have enough cash reserves to fund seasonal working capital needs. However, this is very rare for a new business. If your new venture experiences a need for short-term working capital during its first few years of operation, you will have several potential sources of funding. The important thing is to plan ahead. If you get caught off guard, you might miss out on the one big order that could put your business over the hump.
Here are the five most common sources of short-term working capital financing:
- Yourself, from family and friends
- Trade creditors
- Bank overdraft
- Short term loans
We believe that working capital has a direct impact on cash flow in a business. Since cash flow is the name of the game for all business owners, a good understanding of working capital is imperative to making any venture successful.