Working Capital 101

The phrase working capital is tossed around a lot these days. But in the world of specialty finance, it’s a fundamental building block to getting businesses where they need to go in a timely matter.

Whether it’s a cash advance, asset based loan, factoring facility or other financial product, working capital is just what it sounds like—quick liquidity that can be used for anything a small business needs it for, from covering seasonal dips to servicing a new customer’s demands.

To review some of the basics of working capital, we quizzed the Gibraltar Business Capital team about some key questions we hear from both new and returning clients.

What is working capital?

Lenders often consider working capital as a formula or measurement of current assets minus current liabilities. This represents the ability of a company to meet its short-term obligations. Working-capital facilities, which can come in the form of cash advance, factoring or a line of credit, are designed to bridge gaps in cash flow or support special circumstances.

What is working capital best used for?

Businesses use working capital like cash for day-to-day operations. Depending on the type of industry, working capital could buy raw materials or purchase finished products for re-sale or even support payroll payments. Other special circumstances that demand working capital include changes in a company’s financial health or stage of business cycle, seasonal fluctuations, slow-paying customers and heavy upfront materials requirements.

Do some industries need working capital more than others?

Yes. Certain businesses, such as those that experience seasonal fluctuations, have a greater need for working capital and the flexible cash flow it creates. Manufacturing, distribution, staffing and businesses that sell to retailers (retail trade) are some examples of those most prone to needing resources and having to adjust for sales shifts throughout the year.

Is working capital only a short-term solution?

Typically working capital is considered a more temporary solution for companies that need to bridge inflows and outflows. Because cash inflows don’t align 100% with outflows, many businesses may need to invest upfront to initiate product or services creation—before that money turns into sales dollars. That’s why enterprises often seek outside funding: to meet ongoing working capital demands and take advantage of favorable payment terms. If a business wants to invest in something that has longer-term value, such as large equipment, there are other financing vehicles available.

When do companies need working capital most?

Working capital can be helpful during various stages of the business lifecycle and for various purposes. As an organization evolves, its needs for immediate working capital change. So a company that’s in startup mode has very different needs than a business that’s just been bought, is restructuring or just opened a new channel for customers. All of these scenarios, however, may require some form of liquidity, or working capital.

What if I need working capital right away?

If you know your business has or will experience fluctuations, it’s always best to plan ahead with a working capital line of credit. But not everyone can qualify for this type of facility. For those time- or asset-sensitive situations, there are a variety of other working capital solutions: cash advance, factoring and asset-based lending.

Does my credit need to be perfect in order to get it?

No. And that’s the beauty of the asset based working capital Gibraltar provides. We underwrite on your company’s viable assets, not just financials. Based on weekly borrowing base reports, we offer advance rates of 85 percent against commercial accounts receivable (sometimes, higher—up to 120 percent) and 60 percent against raw and finished goods inventory. Machinery & equipment term loans are based on the forced liquidation value of a recent appraisal.

If you have questions about working capital and how to get it quickly, please contact Scott Winicour at Gibraltar Business Capital—847.272.9618 or


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