What Is Working Capital and Why Does It Matter for Small Businesses?

Working capital — also known as operating assets or net current assets — is one of the most important measures of your company’s financial health. It represents the liquid assets a business has available to cover day-to-day expenses, pay short-term obligations, and fuel growth.

Working capital is calculated by subtracting a company’s current liabilities (debts and obligations) from its current assets (cash, accounts receivable, inventory, and other assets that can quickly be converted into cash).

Without sufficient working capital, businesses can struggle to survive, let alone grow.

How Does a Lack of Working Capital Impact Investors and Funders?

For small businesses, attracting outside investors or securing loans can be especially difficult without healthy working capital. Insufficient working capital signals:

  1. 1. Higher financial risk
  2. 2. Reduced ability to repay debt

  3. 3. Potential liquidity problems

  4.  

According to Investopedia, investors view strong working capital as a positive sign that a business can meet short-term obligations and has a buffer to manage unexpected challenges. Funders often require businesses to pledge assets as collateral if working capital appears weak.

How Can Insufficient Working Capital Disrupt Daily Operations?

Working capital keeps your business running on a daily basis — covering salaries, inventory, rent, utilities, supplies, and more.

Without adequate working capital, businesses may struggle to:

  • Purchase inventory

  • Pay employees

  • Cover recurring expenses

  • Handle equipment repairs

  • Respond to emergencies

In a 2023 report from SBA.gov, insufficient working capital was cited as one of the top reasons small businesses fail, especially when unexpected disruptions occur.

How Does Working Capital Affect Business Growth?

Growth requires upfront investment. To scale operations, businesses need to invest in:

  • Additional staff

  • Equipment and technology

  • New inventory

  • Facility expansion

  • Marketing campaigns

Without working capital, these growth initiatives become difficult or impossible. In highly competitive markets, this can cause businesses to lose market share to better-capitalized competitors.

A study by The Journal of Corporate Finance underscores how working capital management is directly linked to long-term profitability and growth potential.

What Can Businesses Do to Improve Working Capital?

Improving working capital often involves a combination of operational adjustments and financial support. Strategies include:

  • Tightening accounts receivable policies to collect payments faster

  • Reviewing customer credit policies and enforcing limits

  • Converting non-liquid assets into cash

  • Increasing sales revenue through new product offerings or marketing

But even after internal improvements, many businesses still need external funding to bridge shortfalls. That’s where Revenue-Based Financing (RBF) can help.

How Can Revenue-Based Financing Help Strengthen Working Capital?

Revenue-Based Financing offers small businesses a flexible way to boost working capital without sacrificing ownership or risking personal assets:

  • Fast approvals

  • Minimal documentation

  • No collateral required

  • Payments adjust based on sales performance

 

At CFG Merchant Solutions, we simplify this process. As a direct funder, we work closely with businesses to:

  • Evaluate their needs

  • Approve applications quickly

  • Provide funding in as little as 24–48 hours

  •  
  • “When you’re working with CFG Merchant Solutions, you’re not working with banks or brokers — you’re working directly with us.”

Ready to Strengthen Your Working Capital?

If your business needs fast, flexible funding to stabilize daily operations or fuel future growth, Revenue-Based Financing from CFG Merchant Solutions is designed for you.

 

👉 Apply today or contact our team to get started.

 

References & How They Relate to This Article

  • Investopedia: Explains how working capital impacts creditworthiness and investor confidence.

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  • SBA.gov: Identifies insufficient working capital as a leading cause of small business failure.

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  • Journal of Corporate Finance: Highlights the link between working capital management and long-term business growth.

These references demonstrate how critical working capital is for small businesses — and how Revenue-Based Financing offers a solution when internal adjustments alone aren’t enough.