Glossary

Working capital

Current assets minus current liabilities.

Working capital is the cash and near-cash available to run the business over the next year: current assets (cash, receivables, inventory) minus current liabilities (payables, the next twelve months of debt payments). An advance lowers working capital on day one because the payback exceeds the cash received; a long-term loan usually raises it. The formula and what healthy looks like.

How it appears in a contract

Appears in covenants on larger facilities ("maintain working capital of not less than…").

Worked example

$60,000 of current assets and $57,000 of current liabilities: $3,000 of working capital, a ratio of 1.05.

Illustrative figures on stated assumptions; not quotes.

What to ask

• What will this funding do to my working capital on day one?
• Does the facility carry a working-capital covenant?
• Which current liabilities does the lender count?

Related terms

Cash flow underwriting · Net 30 · Accounts receivable financing · Business line of credit · all terms