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Working Capital Questions

What is working capital?

Working capital is a gauge of the efficiency of a company and its short-term financial health. The ratio for working capital is Working Capital = Current Assets – Current Liabilities. If a company has positive working capital then the company has the ability to pay its short-term liabilities. A negative working capital means a company cannot meet its short-term liabilities with the current assets on hand. Uncertainties of what working capital is or what working capital policies can help reduce costs often lead to questions like the ones answered below by Experts.

CanI loan money to my partnership as working capital from another C-Corporation I own or does it have to be from my personal assets? 

Case Details: I own both the C-corporation and the partnership. The loan be for 5 months at 5% APR. The C-Corporation is in the same industry as the partnership.

The C-corporation and your partnership firm that you own are separate entities from each other. You are able to loan the working capital from either source you prefer, from the c-corporation or from your personal assets. If you were to loan the working capital from your C-corp then it will be listed as a creditor with your partnership firm and as a debtor in your C-corp’s books. Additional the firm will be liable to the corporation. However, if you loan the working capital from your personal assets then the firm will be liable to you.

If a firm wanted to reduce their financing costs, which working capital financing policy would they follow?

A firm that is looking to reduce their financing costs should implement a variety of policies including but not limited to; cash management, inventory management, debtors management, and short-term financing. The combinations of policies are aimed at the management of the current assets and short-term financing so as making returns and cash flow acceptable.

Why is working capital management important to financial managers?

Working capital is a gauge that represents operating liquidity available to a business. It is the blood line of a business. Well running working capital can assist in raising credit standings of a business. There aren’t any businesses that can run effectively without a good amount and management of working capital. It is the job of the finance manager to decide the amount of correct working capital. The overall success of a business depends on its working capital management.

What type of loan is the best option if someone's financial statements and tax returns are not great, and credit score is only average?

If you have already tried the traditional route to obtain a loan for working capital and were denied; you can look to hard money lenders. Hard money lenders generally will loan money that is secured by real estate. With any loan less than perfect credit may costs you more in interest or up front points.

Cultivating a good understanding and obtaining the right information on working capital can help when dealing with questions about working capital. Experts can help answer what working capital is or what working capital policies can help reduce costs. Get the answers fast and affordably by asking an Expert.

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