Understanding Working Capital for Small Business Owners


June 6, 2023

Positive cash flow is crucial to the success of a small business, but it's just as important to understand working capital and its effect onthe long-term financial health of your business. This article will provide valuable insights into working capital, its calculation, and various funding options available to increase it.

Defining Working Capital

Working capital refers to the cash and liquid assets a business has available to cover day-to-day expenses. It enables your business to fulfill orders, pay employees, acquire customers, and perform necessary tasks for long-term growth. Sufficient working capital is especially important for businesses that have customers paying in installments, as it ensures you can meet demand even if payments are received over time.

Calculating Working Capital

Working capital can be calculated using the formula: Current Assets - Current Liabilities = Net Working Capital. Current assets include cash, outstanding receivables, inventory, short-term investments, and interest payable. On the other hand, current liabilities encompass short-term loan payments, accounts payable, and accrued costs such as taxes, labor, and business loan interest.

Benefits of Positive Net Working Capital

Positive net working capital indicates that your business has sufficient liquid assets to cover short-term obligations. It signifies good short-term cash flow and sets the stage for smoother expansion and growth opportunities.

Marketplace Funders vs. Traditional Sources of Working Capital:

When seeking additional working capital, traditional lenders and marketplace funders are two primary options. Traditional lenders often have a slower and more rigorous application process, with a higher denial rate for small businesses. In contrast, marketplace funders like Fundr offer quicker online applications, tailored financing solutions, and higher acceptance rates.

Exploring Funding Options

  1. Business Line of Credit: A flexible funding source that serves as a safety net for your business, allowing you to access funds when needed. Qualifying typically requires at least one year of operation and an annual revenue of $50,000, with interest rates starting at approximately 8%.
  1. Business Credit Card: Similar to a line of credit, business credit cards offer flexibility and convenience. Some cards feature introductory 0% APR periods, rewards, or cash back benefits.
  1. Merchant Cash Advance: Ideal for businesses experiencing sudden spikes in demand or unforeseen emergencies, a merchant cash advance provides quick funding by purchasing future receivables at a discounted rate.
  1. Term Business Loan: This type of loan provides upfront funds that can be repaid in regular installments, offering various amounts ranging from $5,000 to $1 million.
  1. Invoice Factoring: Convert outstanding client invoices into immediate cash by offering a discount to a factoring company. It provides quick funding without taking on a business loan.
  1. SBA Loans: SBA loans, guaranteed by the Small Business Administration, offer low interest rates similar to traditional loans but with a partial guarantee from the government.


Working capital plays a vital role in the financial stability and growth of small businesses. By understanding its importance and exploring funding options like marketplace funders, business lines of credit, credit cards, merchant cash advances, term loans, invoice factoring, and SBA loans, you can secure the necessary capital to help your business thrive. Reach out to Fundr for personalized assistance in developing a plan to increase your working capital and drive your business forward.

How Fundr Can Help

At Fundr, we understand that quick access to business funding is crucial for small businesses across the US. That's why we offer fast and efficient small business financing options that can be approved in as little as one hour and paid out as soon as the next business day. Whether you need $5,000 or $500,000, we have the expertise to provide your business with the funding it needs.

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