Working Capital

A working capital loan is a type of advance that helps a business fund its day-to-day or short-term operations. These loans are not used to buy long-term assets or investments and are, instead, used to provide the working capital that covers a company’s short-term operational needs This form of financing is a good source of capital for small and medium enterprises (SMEs) to achieve more consistent cash flow.

What are the sources of Working Capital for a company?

The sources of working capital can either be long term, short term or even spontaneous. Spontaneous working capital are majorly derived from trade credit including notes payable and bills payable while short term working capital sources include dividend or tax provisions, cash credit, public deposits, trade deposits, short-term loans, bills discounting, inter-corporate loans and also commercial paper. For the long-term, working capital sources include long-term loans, provision for depreciation, retained profits, debentures and share capital. These are major working capital sources for organizations based on their requirements.