What is Working Capital and Can a Caveat Loan be Beneficial?

By: Aaron Robbins0 comments

Working-Capital

Caveat Loans are a wonderful finance solution for a great range of business purposes including when your working capital needs replenishment.

If you’re a small business or a new business owner, there’s plenty to wrap your head around when it comes to full business operations.

Working capital is a term that you’ll likely hear time and time again as it’s the foundation that supports your business growth.

Keep reading to uncover more about what working capital is and how you can use a Caveat Loan to support your own!

What does working capital mean?

Similar to how a property’s equity equals the property value minus any debt against it, a business’ working capital is calculated by subtracting any current liabilities from its current assets.

Working capital is therefore how you can measure your business’s ability to cover it’s upcoming expenses.

The net dollar value of your business’s working capital can be measured in either surplus or deficit.

Examples of your current business assets include:

  • Cash on hand.
  • Inventory and stock.
  • Accounts receivable.
  • Even your prepaid expenses!

Current business liabilities can include:

  • Accounts payable.
  • Customer Deposits.
  • Loan repayments.
  • Wages payable.
  • Regular expenses such as commercial rent/lease payments, utilities, and registrations or membership costs.

Your balance sheet will give you a clear idea about what your assets are and what your liabilities are.

For the purpose of your working capital, current liabilities are generally considered to be any costs of expenses that you will incur in the short term.

Is working capital the same as cash flow?

You would be forgiven for thinking that working capital is just another way of saying cash flow but the two are actually different from one another.

Your working capital gives you a snapshot that shows your ability to cover your current expenses.

Cash flow on the other hand, refers to your business’ net position of cash inflow and outflow. For example, if you made $5,000 today and paid $4,000, your cash flow for the day was $1,000.

The two often work together though, as businesses with high working capital will often have high cash flow.

COVID-19 has put an enormous strain on many Australian business’ ability to generate cash flow.

If your business is suffering some cash flow woes, you may like to read about how caveat loans could correct your COVID-19 cash flow crisis.

Why does my business need working capital?

Working capital is a clear indicator of whether your business has sufficient short term assets to be able to cover it’s short term expenses.

It’s for this reason that having positive working capital (meaning, sufficient assets to meet all expenses) is generally the goal for businesses.

If your business has grown enough to attract investors and shareholders, holding adequate working capital is one of the ways that you can demonstrate sound business management to gain their trust.

Calculating your working capital and realising that you have a deficit (ie, not enough to meet your upcoming expenses) would be understandably concerning for any business owner!

This result would show that your business isn’t able to meet it’s operating expenses and could be reflective of some further issues with cash flow or business management.

It is reasonable to always strive to have positive working capital, however, the reality of business ownership is that this isn’t always possible — keep reading to learn about some of the ways you can improve your working capital, including how a caveat loan can assist!

business-need-working-capital

How short term caveat loans can uplift your working capital

Caveat loans may not be a fix-all solution to your working capital issues, but can absolutely compliment other strategies to improve your working capital such as:

  • Managing expenses to improve cash flow.
  • Automating processes for your business finances.
  • Working with vendors who offer discounts and good deals.
  • Meeting any debt obligations such as business loans (you might like to look at debt consolidation, which caveat loans can also make possible).
  • Taking advantage of any tax incentives.
  • Establishing penalty fees for late payments.
  • Resolving any vendor or customer disputes.
  • Negotiating with suppliers and distributors for better payment terms.
  • Getting the legal or financial advice that your business needs.

Short term caveat loans are used by many business owners for a range of business needs, but many clients are only just uncovering how beneficial using a caveat loan can be to improve their working capital.

1. Caveat loans are short term

Short term caveat loans are aptly named; being a short term business loan, they typically have loan terms of anywhere from one month to twelve months.

This means that they can be repaid quickly, and won’t add to the list of liabilities your business needs to meet over the long term.

2. Those with bad credit are eligible to apply

If you’re experiencing working capital strain, it could be because of some challenges your business has been going through.

Challenges can often come with the undesirable side effect of affecting your credit rating.

Thankfully, at Diverse Funding Solutions, we don’t rely on your credit file when assessing your caveat loan application.

In most instances, we don’t need to run a credit check, which means this finance solution may be within your reach where it otherwise wouldn’t be with other lenders.

3. Caveat loans get you funds quickly

When your business needs an injection of working capital, there’s every likelihood you need money fast.

Particularly if you need more working capital to expand your business, you’ll want to strike while window for opportunity is open — Caveat loans can be approved and funded in as little as 48 hours!

Our express quote request takes one minute, all you need to do is simply fill in your details and we can look to get you a letter of offer as quickly as the same day you apply!

Did you know: There is also minimal documentation required when you apply for a caveat loan, which is a fundamental difference between accessing private lending and other bank loans which come with a mountain of paperwork required.

Are caveat loans the same as other business loans?

Fast caveat loans are unique in comparison to other business loans for a variety of reasons, read on to find out more about caveat loans.

Caveat loans are secured by a real estate property

Caveat loans work by effectively using the equity that is tied up in real property you own, to secure the loan.

Whether it’s a residential property or an investment property, provided you have sufficient equity in a property you own, you can apply for caveat lending.

Caveat loans are possible even if you have an existing mortgage, home loan or second mortgage on your property!

This is because a short term caveat loan is secured by placing a legal caveat on the property title deed, which sits behind any mortgage.

Once the lender’s interest is registered on the security property, no other transactions are permitted to be carried out on that property while the caveat remains over it.

These transactions include transferring the ownership or selling the property.

Flexible Lending Criteria

Entering into a lending transaction can often be a pain point for businesses, who are already time-poor and need to source a multitude of application requirements and spend weeks or months waiting for approval.

Accessing caveat lending through Diverse Funding Solutions is hassle-free!

We work with you to devise suitable repayment schedules for your loan amount, on terms relevant to your unique needs.

Being a ‘low doc’ loan, without the requirement to trawl through your tax returns, revenue forecasts, personal circumstances or credit history makes caveat loans a perfect solution for busy business owners.

Attractive Interest Rates and no hidden fees

Our fast approvals do not come at the expense of exurbanite interest rates or sneaky fees.

DFS proudly offers market leading interest rates on our caveat loans, starting at 0.77% per month.

The final interest rate that will be applicable to your short term loan will of course vary depending on your situation, but you can apply with confidence knowing that we are a lender who provides full transparency when it comes to fees and your interest rate.

Is a caveat loan the answer to improve your working capital?

A business’ working capital is the back bone to it’s operations, which is why some working capital mistakes can have a disastrous impact to your business success.

Caveat loans can be a fantastic fast finance solution for when your working capital ratio isn’t where it needs to be.

If you’re a business owner who also owns property with equity, chat with us about how a caveat loan could work for you.

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