Guide
Working Capital, Explained: What It Is, How to Calculate It and When to Finance It
Working capital is the cash your business has available to run day to day: payroll, inventory and bills while you wait to get paid. Here is how it works, how to calculate it, and when it makes sense to finance it.
What is working capital?
Working capital is your current assets (cash, receivables and inventory) minus your current liabilities (payables, payroll due and short-term debts). In practice, it is the cash cushion that keeps a business operating between paying its costs and collecting its revenue. A business can be profitable on paper and still run short of working capital if customers pay slowly or inventory has to be bought months before it sells.
How to calculate working capital
The formula is simple:
| Formula | Example |
|---|---|
| Current assets − Current liabilities | $180,000 − $120,000 = $60,000 working capital |
A positive number means the business can cover its short-term obligations. But the number alone does not tell the whole story. If most of those assets are invoices you will collect in 60 days, the cash you can actually spend today may be far smaller.
Why working capital runs short even when sales are strong
Most working capital problems are about timing, not sales:
- Customers who pay in 30, 60 or 90 days while payroll goes out every week.
- Seasonal inventory that has to be bought months before it sells.
- A large new contract that needs materials and crew before the first invoice is paid.
- Repairs and surprises that cannot wait for the next sales cycle.
How businesses finance working capital
There are three common ways to fund a working capital gap:
- Working capital loan: a lump sum for a specific gap, repaid over a short term. The most direct option.
- Merchant cash advance: repaid as a share of sales, so payments flex down in slower periods. A fit for businesses with daily card or deposit volume.
- Business line of credit: a limit you draw from only when you need it. Best when the gap repeats every month or season.
Working capital through our lender network typically runs $20,000 to $500,000+, with decisions in hours and funding in 24 to 48 hours in most cases.
Who it is built for
| Factor | What most of our clients have |
|---|---|
| Time in business | 1+ year |
| Revenue | $20,000+ a month in business deposits |
| Bank account | Business checking with active deposits |
| Documents | Last 3 months of business bank statements (4 in CA, NY and VA) |
When it makes sense to finance it
Financing working capital makes sense when the money earns a clear return or prevents a bigger cost: inventory that already has a buyer, a signed contract, an early-payment discount from a supplier, or keeping key staff through a slow season. Before applying, decide exactly what the funds are for and how they will be repaid; your specialist will match the product term to that plan.
Prefer Spanish? Lea esta guía en español: capital de trabajo, qué es y cómo usarlo.
Common questions
What is working capital in simple terms?
The cash available to run your business day to day: payroll, inventory and bills while you wait to collect from customers.
How much working capital can my business get?
Typically $20,000 to $500,000+, based on monthly revenue and time in business.
What do I need to apply?
Most of our clients have 1+ year in business, $20,000+ a month in revenue and a business bank account. You will need your last 3 months of business bank statements.
How fast is funding?
Decisions in hours and funding in 24 to 48 hours in most cases.
Is RAN Funding a lender?
No. RAN Funding is a business financing broker: one application for our lender network and one dedicated specialist.
Would absolutely recommend Raul to anyone looking to find funding solutions for their company. If it wasn’t for Raul & RAN Funding I would not have been as prepared as I am now to reach my business goals. Thank you!
Pam Castle · Verified client review
See what you qualify for
One application, about five minutes, soft pull only. A funding specialist comes back with the offers you qualify for — and explains every term before you sign.
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