Working capital financing refers to the funding companies need to run their day to day operations as opposed to long term funding needs, large capital expenditures, etc.
Working capital financing can be in the form of a line of credit renewal every year. The credit facility varies from being flexible to being very structured depending on the funding required and the financial strength of the Borrower. Generally a well financed company will have working capital short term financing, medium and long term financing. The more complex the Borrower, the more complex will be the financing structure and vice versa.
For more cash strapped companies or rapidly growing companies, working capital financing is either a structured asset based financing, factoring or Purchase Order financing. This last type of financing is unique because not only does it provide unlimited financing to purchase pre sold inventory to satisfy purchase orders but also to carry the financing through the receivable cycle. Purchase Order financing, if available is unique of all the working capital financing because it is in essence transactional venture capital.
The different sources of Working Capital Financing are:
- Commercial Banks
- Specialized Asset Based lenders
- Purchase Order Financing companies
- Venture Funds
- Private Financing sources
Each of the above funding sources has their applications. The borrower should clearly understand its specific needs and find the right type of lender otherwise a miss fit can be costly and time consuming.
Working Capital management is an art which requires the Borrower to have a clear handle as to its Operating and Non-operating sources and uses of funds and to have a clear handle as to the reason for the shortfall and how best to fund this need. A mismatch between a funding need and source and type of funding used can cover up problems that will surface at a later date with extra vigor and cause serious disruption to the smooth running of the Borrower’s operation.
Contact Ashford Finance to find creative solutions and funding to your Working Capital needs.
Application (pdf version; click to view, complete, print, fax or email to us)